BILL NUMBER: SB 1229	CHAPTERED  10/10/99

	CHAPTER   987
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 10, 1999
	PASSED THE SENATE   SEPTEMBER 8, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 3, 1999
	AMENDED IN ASSEMBLY   SEPTEMBER 2, 1999
	AMENDED IN ASSEMBLY   AUGUST 16, 1999
	AMENDED IN ASSEMBLY   JUNE 30, 1999
	AMENDED IN SENATE   APRIL 12, 1999

INTRODUCED BY   Committee on Revenue and Taxation (Senators Chesbro
(Chair), Alpert, Bowen, Burton, Johnston, McPherson, and Poochigian)

                        FEBRUARY 26, 1999

   An act to amend Section 52514.5 of the Health and Safety Code, to
amend Sections 9201 and 9203 of the Probate Code, to amend Sections
17053.45, 17053.49, 17054.5, 17071, 17073, 17074, 17075, 17076,
17077, 17083, 17085, 17087, 17140, 17140.3, 17142.5, 17143, 17144,
17250, 17268, 17270, 17274, 17276.5, 17287, 17551, 17552, 17553,
17639, 17640, 17651, 17671, 17732, 17851, 17853, 17857, 17935, 18601,
18604, 18622, 18662, 18711, 18721, 18741, 18763, 18782, 18793,
18801, 18812, 18821, 18841, 18851, 18871, 19023, 19059, 19060, 19089,
19106, 19145, 19151, 19311, 19411, 23153, 23221, 23335, 23612.2,
23622.7, 23645, 23649, 23701c, 23704.5, 23704.6, 23731, 23736.1,
23740, 23776, 23777, 23778, 24306, 24357.6, 24410, 24416.2, 24416.5,
24436.5, 25106, and 25114 of, and to repeal Sections 17013, 17077.5,
17084, 17085.5, 17132.5, 17134.5, 17139, 17218, 17275.6, 17330,
17551.5, 17563, 17852, 17859, 17860, 18605, 19053, 23043, and 23701q
of, the Revenue and Taxation Code, and to amend Section 1185 of the
Unemployment Insurance Code, relating to taxation, to take effect
immediately, tax levy.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1229, Committee on Revenue and Taxation.  Income and bank and
corporation taxes.
   The Personal Income Tax Law and the Bank and Corporation Tax Law
generally prohibit, in computing the income that is subject to the
taxes imposed by those laws, the deduction by any taxpayer who
derives rental income from substandard housing, as defined, of any
interest, taxes, depreciation, or amortization paid during a taxable
or income year with respect to substandard housing.
   This bill would make technical, clarifying changes to these
provisions with respect to the definition of substandard housing.
   The Bank and Corporation Tax Law provides, in the case of a
business with income derived from, or attributable to, sources both
within and without this state, that income is apportioned between
this state and foreign jurisdictions in accordance with a specified
formula.  The Bank and Corporation Tax Law authorizes a taxpayer
whose income is subject to apportionment to determine its income
under a water's edge election made in connection with a specified
contract.
   This bill would modify these provisions to delete obsolete
language with respect to the apportionment of dividends, and would
make clarifying changes with respect to the audit process followed by
the Franchise Tax Board with respect to taxpayers that have made a
water's-edge election.  This bill would make legislative findings and
declarations that these clarifying changes do not constitute a
change in, but are declaratory of, existing law.
   The Personal Income Tax Law allows a dependent parent credit in an
amount equal to the lesser of 30% of the net tax or $200, as
adjusted, to a taxpayer who meets certain requirements.
   This bill would provide an additional requirement that the
taxpayer uses the head of household or surviving spouse filing
status.
   The Personal Income Tax Law provides for specified taxation with
respect to nonresidents.
   This bill would clarify the treatment accorded to nonresidents and
part-year residents, as provided.
   Existing law providing for the administration of income and bank
and corporation tax laws requires every taxpayer subject to taxes
under the Bank and Corporation Tax Law to file a return within 2
months and 15 days after the close of its income year.
   This bill would require those taxpayers to file a return on or
before the 15th day of the 3rd month following the close of its
income year.
   Existing franchise and income tax laws provide, among other
things, an extension for filing certain corporation tax returns,
payment of estimated taxes by corporations, and certain penalties and
additions to tax.
   This bill would make nonsubstantive, clarifying changes to those
provisions.
   The Bank and Corporation Tax Law provides for the suspension or
forfeiture of certain exempt corporations.
   This bill would provide that if those corporations have suffered a
suspension or forfeiture, as specified, they may be required to file
a new application for exemption with an application for revivor.
   Existing unemployment insurance law requires the Director of
Employment Development, in collaboration with the Franchise Tax
Board, to take certain actions with respect to disability insurance
contribution overpayments.
   This bill would clarify those duties and the manner in which
interest is to be paid on overpayments.
   This bill would for purposes of the Personal Income Tax Law or the
Bank and Corporation Tax Law, or both, make numerous technical,
clarifying, and supplemental changes relating to, among other things,
federal determinations and changes, alternative minimum tax,
voluntary contribution funds, various credits, net operating losses,
scholarshare, emergency food assistance, minimum franchise tax, and
dividends received from an insurance company subsidiary.
   This bill would also make numerous nonsubstantive, technical
changes relating to taxation, as provided.
   This bill would incorporate changes to certain laws proposed by
this bill, AB 473, SB 1125, or AB 1208 or any combination thereof, if
this bill and those other bills are chaptered, as provided.
   This bill would take effect immediately as a tax levy.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 52514.5 of the Health and Safety Code is
amended to read:
   52514.5.  All payments to the agency by the borrower on any note
executed pursuant to Section 52514 shall be considered payments of
interest for the purposes of Section 17230 of the Revenue and
Taxation Code.
  SEC. 2.  Section 9201 of the Probate Code is amended to read:
   9201.  (a) Notwithstanding any other statute, if a claim of a
public entity arises under a law, act, or code listed in subdivision
(b):
   (1) The public entity may provide a form to be used for the
written notice or request to the public entity required by this
chapter.  Where appropriate, the form may require the decedent's
social security number, if known.
   (2) The claim is barred only after written notice or request to
the public entity and expiration of the period provided in the
applicable section.  If no written notice or request is made, the
claim is enforceable by the remedies, and is barred at the time,
otherwise provided in the law, act, or code.
   (b)


            Law, Act, or Code          Applicable Section

         Sales and Use Tax Law        Section 6487.1 of the
         (commencing with Section     Revenue and
         6001 of the Revenue and      Taxation Code
         Taxation Code)
         Bradley-Burns Uniform        Section 6487.1 of the
         Local Sales and Use Tax      Revenue and
         Law (commencing with         Taxation Code
         Section 7200 of the
         Revenue and Taxation
         Code)
         Transactions and Use         Section 6487.1 of the
         Tax Law (commencing          Revenue and
         with Section 7251 of the     Taxation Code
         Revenue and Taxation Code)
         Motor Vehicle Fuel License   Section 7675.1 of the
         Tax Law (commencing with     Revenue and
         Section 7301 of the          Taxation Code
         Revenue and Taxation Code)
         Use Fuel Tax Law             Section 8782.1 of the
         (commencing with Section     Revenue and
         8601 of the Revenue          Taxation Code
         and Taxation Code)
         Administration of            Section 19517 of the
         Franchise and Income         Revenue and
         Tax Law (commencing          Taxation Code
         with Section
         18401 of the Revenue
         and Taxation Code)
         Cigarette Tax Law            Section 30207.1 of the
         (commencing with Section     Revenue and
         30001 of the Revenue         Taxation Code
         and Taxation Code)
         Alcoholic Beverage           Section 32272.1 of the
         Tax Law (commencing          Revenue and
         with Section                 Taxation Code
         32001 of the Revenue
         and Taxation Code)
         Unemployment Insurance       Section 1090 of the
         Code                         Unemployment
                                      Insurance Code
         State Hospitals for          Section 7277.1 of the
         the Mentally Disordered      Welfare and
         (commencing with Section     Institutions Code
         7200 of the Welfare and
         Institutions Code)
         Medi-Cal Act (com-           Section 9202 of the
         mencing with Section         Probate Code
         14000 of the Welfare and
         Institutions Code)
         Waxman-Duffy Prepaid         Section 9202 of the
         Health Plan Act (com-        Probate Code
         mencing with Section 14200
         of the Welfare and
         Institutions Code)

  SEC. 3.  Section 9203 of the Probate Code is amended to read:
   9203.  (a) Failure of a person to give the written notice or
request required by this chapter does not affect the validity of any
proceeding under this code concerning the administration of the
decedent's estate.
   (b) If property in the estate is distributed before expiration of
the time allowed a public entity to file a claim, the public entity
has a claim against the distributees to the full extent of the public
entity's claim, or each distributee's share of the distributed
property, whichever is less.  The public entity's claim against
distributees includes interest at a rate equal to that specified in
Section 19521 of the Revenue and Taxation Code, from the date of
distribution or the date of filing the claim by the public entity,
whichever is later, plus other accruing costs as in the case of
enforcement of a money judgment.
  SEC. 4.  Section 17013 of the Revenue and Taxation Code is
repealed.
  SEC. 5.  Section 17053.45 of the Revenue and Taxation Code is
amended to read:
   17053.45.  (a) For each taxable year beginning on or after January
1, 1995, there shall be allowed as a credit against the "net tax"
(as defined by Section 17039) an amount equal to the sales or use tax
paid or incurred by the taxpayer in connection with the purchase of
qualified property to the extent that the qualified property does not
exceed a value of one million dollars ($1,000,000).
   (b) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (3) "Qualified property" means property that is each of the
following:
   (A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (C) Any of the following:
   (i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
   (ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
   (iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
   (iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
   (c) The credit provided under subdivision (a) shall be allowed
only for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
   (d) In the case where the credit otherwise allowed under this
section exceeds the "net tax" for the taxable year, that portion of
the credit which exceeds the "net tax" may be carried over and added
to the credit, if any, in succeeding years, until the credit is
exhausted.  The credit shall be applied first to the earliest taxable
years possible.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
   (f) (1) The amount of credit otherwise allowed under this section
and Section 17053.46, including any credit carryover from prior
years, that may reduce the "net tax" for the taxable year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
   (2) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is
attributable to sources in this state shall first be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11.  That business income shall be further apportioned to the LAMBRA
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17 of Part 11, as modified for purposes of this section in
accordance with paragraph (3).
   (3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor, plus the payroll factor,
and the denominator of which is two.  For purposes of this paragraph:

   (A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
   (B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
   (4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding taxable
years, as if it were an amount exceeding the "net tax" for the
taxable year, as provided in subdivision (d).
   (g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second taxable year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
taxable year of that disposition or nonuse.
   (2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's net tax for the taxpayer's
second taxable year.
   (h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
   (i) The amendments made to this section by the act adding this
subdivision shall apply to taxable years beginning on or after
January 1, 1998.
  SEC. 6.  Section 17053.49 of the Revenue and Taxation Code is
amended to read:
   17053.49.  (a) (1) A qualified taxpayer shall be allowed a credit
against the "net tax," as defined in Section 17039, equal to 6
percent of the qualified cost of qualified property that is placed in
service in this state.
   (2) In the case of any qualified costs paid or incurred on or
after January 1, 1994, and prior to the first taxable year of the
qualified taxpayer beginning on or after January 1, 1995, the credit
provided under paragraph (1) shall be claimed by the qualified
taxpayer on the qualified taxpayer's return for the first taxable
year beginning on or after January 1, 1995.  No credit shall be
claimed under this section on a return filed for any taxable year
commencing prior to the qualified taxpayer's first taxable year
beginning on or after January 1, 1995.
   (b) (1) For purposes of this section, "qualified cost" means any
cost that satisfies each of the following conditions:
   (A) Except as otherwise provided in this subparagraph, is a cost
paid or incurred by the qualified taxpayer for the construction,
reconstruction, or acquisition of qualified property on or after
January 1, 1994, and prior to the date this section ceases to be
operative under paragraph (2) of subdivision (i).  In the case of any
qualified property constructed, reconstructed, or acquired by the
qualified taxpayer (or any person related to the qualified taxpayer
within the meaning of Section 267 or 707 of the Internal Revenue
Code) pursuant to a binding contract in existence on or prior to
January 1, 1994, costs paid pursuant to that contract shall be
subject to allocation as follows:  contract costs shall be allocated
to qualified property based on a ratio of costs actually paid prior
to January 1, 1994, and total contract costs actually paid.  "Cost
paid" shall include, without limitation, contractual deposits and
option payments.  To the extent of costs allocated, whether or not
currently deductible or depreciable for tax purposes, to a period
prior to January 1, 1994, the cost shall be deemed allocated to
property acquired before January 1, 1994, and is thus not a
"qualified cost."
   (B) Except as provided in paragraph (3) of subdivision (d) and
subparagraph (B) of paragraph (4) of subdivision (d), is an amount
upon which the qualified taxpayer has paid, directly or indirectly,
as a separately stated contract amount or as determined from the
records of the qualified taxpayer, sales or use tax under Part 1
(commencing with Section 6001).
   (C) Is an amount properly chargeable to the capital account of the
qualified taxpayer.
   (2) (A) For purposes of this subdivision, any contract entered
into on or after January 1, 1994, that is a successor or replacement
contract to a contract that was binding prior to January 1, 1994,
shall be treated as a binding contract in existence prior to January
1, 1994.
   (B) If a successor or replacement contract is entered into on or
after January 1, 1994, and the subject of the successor or
replacement contract relates both to amounts for the construction,
reconstruction, or acquisition of qualified property described in the
original binding contract and to costs for the construction,
reconstruction, or acquisition of qualified property not described in
the original binding contract, then the portion of those amounts
described in the successor or replacement contract that were not
described in the original binding contract shall not be treated as
costs paid or incurred pursuant to a binding contract in existence on
or prior to January 1, 1994, under subparagraph (A) of paragraph
(1).
   (3) (A) For purposes of this section, an option contract in
existence prior to January 1, 1994, under which a qualified taxpayer
(or any other person related to the qualified taxpayer within the
meaning of Section 267 or 707 of the Internal Revenue Code) had an
option to acquire qualified property, shall be treated as a binding
contract under the rules in paragraph (2).  For purposes of this
subparagraph, an option contract shall not include an option under
which the optionholder will forfeit an amount less than 10 percent of
the fixed option price in the event the option is not exercised.
   (B) For purposes of this section, a contract shall be treated as
binding even if the contract is subject to a condition.
   (4) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first taxable year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears.
   (c) (1) For purposes of this section, "qualified taxpayer" means
any taxpayer engaged in those lines of business described in Codes
2011 to 3999, inclusive, or Codes 7371 to 7373, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
   (2) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer under this section shall
be made at the entity level and any credit under this section or
Section 23649 shall be allowed to the passthrough entity and passed
through to the partners or shareholders in accordance with applicable
provisions of Part 10 (commencing with Section 17001) or Part 11
(commencing with Section 23001).  For purposes of this paragraph, the
term "passthrough entity" means any partnership or S corporation.
   (3) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section, including any regulations necessary to
prevent the avoidance of the effect of this section through
splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.
   (d) For purposes of this section, "qualified property" means
property that is described as any of the following:
   (1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code for use by a qualified taxpayer in those
lines of business described in Codes 2011 to 3999, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, that is
primarily used for any of the following:
   (A) For the manufacturing, processing, refining, fabricating, or
recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered tangible
personal property to its completed form, including packaging, if
required.
   (B) In research and development.
   (C) To maintain, repair, measure, or test any property described
in this paragraph.
   (D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.
   (E) For recycling.
   (2) Computers and computer peripheral equipment, as defined in
Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible
personal property as defined in Section 1245(a) of the Internal
Revenue Code for use by a qualified taxpayer in those lines of
business described in SIC Codes 7371 to 7373, inclusive, of the SIC
Manual, 1987 edition, that is primarily used to develop or
manufacture prepackaged software or custom software prepared to the
special order of the purchaser who uses the program to produce and
sell or license copies of the program as prepackaged software.
   (3) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1) or (2).
   (4) In the case of any qualified taxpayer engaged in manufacturing
activities described in SIC Code 357 or 367, those activities
related to biotechnology described in SIC Code 8731, those activities
related to biopharmaceutical establishments only that are described
in SIC Codes 2833 to 2836, inclusive, those activities related to
space vehicles and parts described in SIC Codes 3761 to 3769,
inclusive, those activities related to space satellites and
communications satellites and equipment described in SIC Codes 3663
and 3812 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1996), or those activities
related to semiconductor equipment manufacturing described in SIC
Code 3559 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1997), "qualified property"
also includes the following:
   (A) Special purpose buildings and foundations that are constructed
or modified for use by the qualified taxpayer primarily in a
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose").
   (ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use the
structure for a different purpose.
   (iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified.  Incidental use of a building for
nonqualified purposes does not preclude the building from being a
special purpose building.  "Incidental use" means a use which is both
related and subordinate to the qualified purpose.  It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to a
use which is not a qualified purpose.
   (iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph.
   (v) To the extent that a building is not a special purpose
building as defined above, but a portion of the building qualifies
for treatment as a special purpose building, then all equipment which
exclusively supports the qualified purpose occurring within that
portion and which would qualify as Internal Revenue Code Section 1245
property if it were not a fixture or affixed to the building shall
be treated as a cost of the portion of the building which qualifies
for treatment as a special purpose building.
   (vi) Buildings and foundations which do not meet the definition of
a special purpose building and foundation set forth above include,
but are not limited to:  buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process.  A research facility shall not be
considered to be used primarily prior to or after, or prior to and
after, the manufacturing process if its purpose and use relate
exclusively to the development and regulatory approval of the
manufacturing process for specific biopharmaceutical products.  A
research facility which is used primarily in connection with the
discovery of an organism from which a biopharmaceutical product or
process is developed does not meet the requirements of the preceding
sentence.
   (5) Subject to the provisions in subparagraph (B) of paragraph (1)
of subdivision (b), qualified property also includes computer
software that is primarily used for those purposes set forth in
paragraph (1) or (2) of this subdivision.
   (6) Qualified property does not include any of the following:
   (A) Furniture.
   (B) Facilities used for warehousing purposes after completion of
the manufacturing process.
   (C) Inventory.
   (D) Equipment used in the extraction process.
   (E) Equipment used to store finished products that have completed
the manufacturing process.
   (F) Any tangible personal property that is used in administration,
general management, or marketing.
   (G) Any vehicle for which a credit is claimed pursuant to Section
17052.11 or 23603.
   (e) For purposes of this section:
   (1) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics.  Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities which make use of chemical compounds to produce commercial
products.
   (2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.

   (3) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
   (4) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as
well as activities regarding pharmaceutical delivery systems designed
to provide a measure of control over the rate, duration, and site of
pharmaceutical delivery.
   (5) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (d).
   (6) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer and ending at the point
at which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required.  Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified taxpayer's manufacturing, processing,
refining, or recycling activity is conducted.  Raw materials that are
stored on premises other than where the qualified taxpayer's
manufacturing, processing, refining, fabricating, or recycling
activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining, fabricating,
or recycling process.
   (7) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (10) "Small business" means a qualified taxpayer that meets any of
the following requirements during the taxable year for which the
credit is allowed:
   (A) Has gross receipts of less than fifty million dollars
($50,000,000).
   (B) Has net assets of less than fifty million dollars
($50,000,000).
   (C) Has a total credit of less than one million dollars
($1,000,000).
   (D) For taxable years beginning on or after January 1, 1997, is
engaged in biopharmaceutical activities or other biotechnology
activities that are described in Codes 2833 to 2836, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, and has
not received regulatory approval for any product from the United
States Food and Drug Administration.
   (f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:
   (1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, shall not be allowed the credit
provided under subdivision (a) with respect to any qualified property
leased to another qualified taxpayer.
   (2) For purposes of paragraphs (2) and (3) of subdivision (b),
"binding contract" shall include any lease agreement with respect to
the qualified property.
   (3) (A) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the following
rules shall apply:
   (i) Except as provided by subparagraph (C) of this paragraph,
subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall
not apply.
   (ii) Except as provided in subparagraph (B) and clause (iii), the
"qualified cost" upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 18031) of the qualified
property that is the subject of the lease.
   (iii) Except as provided in clause (iv), the requirement of
subparagraph (B) of paragraph (1) of subdivision (b) shall be treated
as satisfied only if the lessor has made a timely election under
either Section 6094.1 or subdivision (d) of Section 6244 and has paid
sales tax reimbursement or use tax measured by the purchase price of
the qualified property (within the meaning of paragraph (5) of
subdivision (g) of Section 6006).  For purposes of this subdivision
and clause (iv), the amount of original cost to the lessor which may
be taken into account under clause (ii) shall not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence or under clause (iv).
   (iv) With respect to leases entered into between January 1, 1994,
and the effective date of this clause, the lessor may elect to pay
use tax measured by the purchase price of the property by reporting
and paying the tax with the return of the lessor for the fourth
calendar quarter of 1994.  In computing the use tax under the
preceding sentence, a credit shall be allowed under Part 1
(commencing with Section 6001) for all sales or use tax previously
paid on the lease.
   (B) For purposes of applying subparagraph (A) only, the following
special rules shall apply:
   (i) The original cost to the lessor of the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section.
   (ii) Clause (i) shall not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).
   (iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a predecessor
lessor in a transaction not treated as a sale under Part 1
(commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section.
   (C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor on
or after January 1, 1994, and prior to the date this section ceases
to be operative under paragraph (2) of subdivision (i), shall be
taken into account.  In the case of any qualified property
constructed, reconstructed, or acquired by a lessor pursuant to a
binding contract in existence on or prior to January 1, 1994, the
allocation rule specified in subparagraph (A) of paragraph (1) of
subdivision (b) shall apply in determining the original cost to the
lessor of qualified property.
   (D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).
   (4) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as a
sale under Part 1 (commencing with Section 6001), the following rules
shall apply:
   (A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be
applied by substituting the term "purchase" for the term
"construction, reconstruction, or acquisition."
   (B) Subparagraph (C) of paragraph (1) of subdivision (b) shall
apply.
   (C) The requirement of subparagraph (B) of paragraph (1) of
subdivision (b) shall be treated as satisfied at the time that either
the lessor or the qualified taxpayer pays sales or use tax under
Part 1 (commencing with Section 6001).
   (5) (A) In the case of any leasing transaction described in
paragraph (3), the lessor shall provide a statement to the lessee
specifying the amount of the lessor's original cost of the qualified
property and the amount of that cost upon which a sales or use tax
was paid within 45 days after the close of the lessee's taxable year
in which the credit is allowable to the lessee under this section.
   (B) The statement required under subparagraph (A) shall be made
available to the Franchise Tax Board upon request.
   (6) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first taxable year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears.  In addition, "the effective date of this
paragraph" shall be substituted for "the effective date of this
clause" and "fourth calendar quarter of 1998" shall be substituted
for "fourth calendar quarter of 1994."
   (g) No credit shall be allowed if the qualified property is
removed from the state, is disposed of to an unrelated party, or is
used for any purpose not qualifying for the credit provided in this
section in the same taxable year in which the qualified property is
first placed in service in this state.  If any qualified property for
which a credit is allowed pursuant to this section is thereafter
removed from this state, disposed of to an unrelated party, or used
for any purpose not qualifying for the credit provided in this
section within one year from the date the qualified property is first
placed in service in this state, the amount of the credit allowed by
this section for that qualified property shall be recaptured by
adding that credit amount to the net tax of the qualified taxpayer
for the taxable year in which the qualified property is disposed of,
removed, or put to an ineligible use.
   (h) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years as follows:
   (1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted.
   (2) In the case of a small business, for the nine succeeding
years, if necessary, until the credit is exhausted.
   (i) (1) This section shall remain in effect until the date
specified in paragraph (2), on which date this section shall cease to
be operative, and as of that date is repealed.
   (2) (A) This section shall cease to be operative on January 1,
2001, or on January 1 of the earliest year thereafter, if the total
employment in this state, as determined by the Employment Development
Department on the preceding January 1, does not exceed by 100,000
jobs the total employment in this state on January 1, 1994.  The
department shall report to the Legislature annually with respect to
the determination required by the preceding sentence.
   (B) For purposes of this paragraph, "total employment" means the
total employment in the manufacturing sector, excluding employment in
the aerospace sector.
   (j) The amendments made by the act adding this subdivision shall
be operative for taxable years beginning on or after January 1, 1997,
except as provided in paragraph (3) of subdivision (d).
   (k) The amendments made by the act adding this subdivision shall
be operative for taxable years beginning on or after January 1, 1998.

  SEC. 6.5.  Section 17054.5 of the Revenue and Taxation Code is
amended to read:
   17054.5.  (a) (1) There shall be allowed as a credit against the
"net tax" (as defined in Section 17039) of a qualified individual an
amount equal to 30 percent of the net tax.
   (2) For taxable years beginning on or after January 1, 1987, and
before January 1, 1988, a qualified individual means a qualified
joint custody head of household as defined in subdivision (c).
   (3) For taxable years beginning on or after January 1, 1988, a
qualified individual means either of the following:
   (A) A "qualified joint custody head of household" as defined in
subdivision (c).
   (B) A "qualified taxpayer" as defined in subdivision (e).
   (4) The amount of the credit under this section shall not exceed
two hundred dollars ($200) for any taxable year.
   (b) For each taxable year beginning on or after January 1, 1988,
the Franchise Tax Board shall recompute the maximum credit prescribed
in subdivision (a).  That computation shall be made as follows:
   (1) The California Department of Industrial Relations shall
transmit annually to the Franchise Tax Board the percentage change in
the California Consumer Price Index as modified for rental
equivalent homeownership for all items from June of the prior
calendar year to June of the current calendar year, no later than
August 1 of the current calendar year.
   (2) The Franchise Tax Board shall add 100 percent to the
percentage change figure which is furnished to them pursuant to
paragraph (1) and divide the result by 100.
   (3) The Franchise Tax Board shall multiply the immediately
preceding taxable year credit by the inflation adjustment factor
determined in paragraph (2), and round off the resulting product to
the nearest one dollar ($1).
   (c) "Qualified joint custody head of household" means an
individual who meets all of the following:
   (1) Is not married at the close of the taxable year, or files a
separate return and does not have his or her spouse as a member of
his or her household during the entire taxable year.
   (2) Maintains as his or her home a household which constitutes for
the taxable year the principal place of abode for a qualifying
child, as defined in subdivision (d), for no less than 146 days of
the taxable year but no more than 219 days of the taxable year, under
a decree of dissolution or separate maintenance, or under a written
agreement between the parents prior to the issuance of a decree of
dissolution or separate maintenance where the proceedings have been
initiated.
   (3) Furnishes over one-half the cost of maintaining the household
during the taxable year.
   (4) Does not qualify as a head of household under Section 17042 or
as a surviving spouse under Section 17046.
   (d) For purposes of this section, a "qualifying child" means a
son, stepson, daughter, or stepdaughter of the taxpayer or a
descendant of a son or daughter of the taxpayer, but if that son,
stepson, daughter, stepdaughter, or descendant is married at the
close of the taxpayer's taxable year, only if the taxpayer is
entitled to a credit for the taxable year for that person under
Section 17054.
   (e) "Qualified taxpayer" means an individual who meets all of the
following:
   (1) Is married and files a separate return.
   (2) During the last six months of the taxable year the taxpayer's
spouse was not a member of the taxpayer's household.
   (3) Maintains a household, whether or not the taxpayer's home,
which constitutes the principal place of abode of a dependent mother
or father of the taxpayer for the taxable year.
   (4) Furnishes over one-half of the cost of maintaining the
household during the taxable year.
   (5) Does not qualify as a head of household under Section 17042 or
as a surviving spouse under Section 17046.
  SEC. 7.  Section 17071 of the Revenue and Taxation Code is amended
to read:
   17071.  Section 61 of the Internal Revenue Code, relating to gross
income defined, shall apply, except as otherwise provided.
  SEC. 8.  Section 17073 of the Revenue and Taxation Code is amended
to read:
   17073.  (a) Section 63 of the Internal Revenue Code, relating to
taxable income defined, shall apply, except as otherwise provided.
   (b) For individuals who do not itemize deductions, the standard
deduction computed in accordance with Section 17073.5 shall be
allowed as a deduction in computing taxable income.
  SEC. 9.  Section 17074 of the Revenue and Taxation Code is amended
to read:
   17074.  Section 64 of the Internal Revenue Code, relating to
ordinary income defined, shall apply, except as otherwise provided.

  SEC. 10.  Section 17075 of the Revenue and Taxation Code is amended
to read:
   17075.  Section 65 of the Internal Revenue Code, relating to
ordinary loss defined, shall apply, except as otherwise provided.
  SEC. 11.  Section 17076 of the Revenue and Taxation Code is amended
to read:
   17076.  Section 67 of the Internal Revenue Code, relating to the
2-percent floor on miscellaneous itemized deductions, shall apply,
except as otherwise provided.
  SEC. 12.  Section 17077 of the Revenue and Taxation Code is amended
to read:
   17077.  Section 68 of the Internal Revenue Code, relating to
overall limitation on itemized deductions, shall apply, except as
otherwise provided.
   (a) "Six percent" shall be substituted for "3 percent" in Section
68(a)(1) of the Internal Revenue Code.
   (b) Section 68(b)(1) of the Internal Revenue Code shall not apply
and in lieu thereof the term "applicable amount" in each place it
appears in Section 68(a) of the Internal Revenue Code means one
hundred thousand dollars ($100,000) in the case of a single
individual or a married individual making a separate return, one
hundred fifty thousand dollars ($150,000) in the case of a head of
household, and two hundred thousand dollars ($200,000) in the case of
a surviving spouse or a husband and wife making a joint return.
   (c) Section 68(b)(2) of the Internal Revenue Code, relating to
inflation adjustments, shall not apply.  However, for any taxable
year beginning on or after January 1, 1992, the applicable amounts
specified in subdivision (b) shall be recomputed annually in the same
manner as the recomputation of income tax brackets under subdivision
(h) of Section 17041.
  SEC. 13.  Section 17077.5 of the Revenue and Taxation Code is
repealed.
  SEC. 14.  Section 17083 of the Revenue and Taxation Code is amended
to read:
   17083.  Section 85 of the Internal Revenue Code, relating to
unemployment compensation, shall not apply.
  SEC. 15.  Section 17084 of the Revenue and Taxation Code is
repealed.
  SEC. 16.  Section 17085 of the Revenue and Taxation Code is amended
to read:
   17085.  Section 72 of the Internal Revenue Code, relating to
annuities and certain proceeds of life insurance contracts, shall be
modified as follows:
   (a) The amendments and transitional rules made by Public Law
99-514 shall be applicable to this part for the same transactions and
the same years as they are applicable for federal purposes, except
that the repeal of Section 72(d) of the Internal Revenue Code,
relating to repeal of special rule for employees' annuities, shall
apply only to the following:
   (1) Any individual whose annuity starting date is after December
31, 1986.
   (2) At the election of the taxpayer, any individual whose annuity
starting date is after July 1, 1986, and before January 1, 1987.
   (b) The amount of a distribution from an individual retirement
account or annuity or employees' trust or employee annuity that is
includable in gross income for federal purposes shall be reduced for
purposes of this part by the lesser of either of the following:
   (1) An amount equal to the amount includable in federal gross
income for the taxable year.
   (2) An amount equal to the basis in the account or annuity allowed
by Section 17507 (relating to individual retirement accounts and
simplified employee pensions) or the increased basis allowed by
Sections 17504 and 17506 (relating to plans of self-employed
individuals) remaining after adjustment for reductions in gross
income under this provision in prior taxable years.
   (c) (1) Except as provided in paragraph (2), the amount of the
penalty imposed under this part shall be computed in accordance with
Sections 72(m), (q), (t), and (v) of the Internal Revenue Code using
a rate of 21/2 percent, in lieu of the rate provided in those
sections.
   (2) In the case where Section 72(t)(6) of the Internal Revenue
Code, relating to special rules for simple retirement accounts,
applies, the rate in paragraph (1) shall be 6 percent in lieu of the
21/2 percent rate specified therein.
   (d) Section 72(f)(2) of the Internal Revenue Code, relating to
special rules for computing employees' contributions, shall be
applicable without applying the exceptions which immediately follow
that paragraph.
  SEC. 17.  Section 17085.5 of the Revenue and Taxation Code is
repealed.
  SEC. 18.  Section 17087 of the Revenue and Taxation Code is amended
to read:
   17087.  (a) Section 86 of the Internal Revenue Code, relating to
Social Security and Tier 1 Railroad Retirement Benefits, shall not
apply.
   (b) Section 72(r) of the Internal Revenue Code, relating to Tier 2
Railroad Retirement Benefits, shall not apply.
   (c) Section 105(h) of the Internal Revenue Code, relating to sick
pay under the Railroad Unemployment Insurance Act, shall not apply.

  SEC. 19.  Section 17132.5 of the Revenue and Taxation Code is
repealed.
  SEC. 20.  Section 17134.5 of the Revenue and Taxation Code is
repealed.
  SEC. 21.  Section 17139 of the Revenue and Taxation Code is
repealed.
  SEC. 22.  Section 17140 of the Revenue and Taxation Code is amended
to read:
   17140.  (a) For purposes of this section, the following terms have
the following meanings as provided in the Golden State Scholarshare
Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of
Part 42 of the Education Code):
   (1) "Beneficiary" has the meaning set forth in subdivision (c) of
Section 69980 of the Education Code.
   (2) "Benefit" has the meaning set forth in subdivision (d) of
Section 69980 of the Education Code.
   (3) "Participant" has the meaning set forth in subdivision (h) of
Section 69980 of the Education Code.
   (4) "Participation agreement" has the meaning set forth in
subdivision (i) of Section 69980 of the Education Code.
   (5) "Scholarshare trust" has the meaning set forth in subdivision
(f) of Section 69980 of the Education Code.
   (b) Except as otherwise provided in subdivision (c), gross income
of a beneficiary or a participant does not include any of the
following:
   (1) Any distribution or earnings under a Scholarshare trust
participation agreement, as provided in Article 19 (commencing with
Section 69980) of Chapter 2 of Part 42 of the Education Code.
   (2) Any contribution to the Scholarshare trust on behalf of a
beneficiary shall not be includable as gross income of that
beneficiary.
   (c) (1) Any distribution under a Scholarshare trust participation
agreement shall be includable in the gross income of the distributee
in the manner as provided under Section 72 of the Internal Revenue
Code, as modified by Section 17085, to the extent not excluded from
gross income under this part.  For purposes of applying Section 72 of
the Internal Revenue Code, the following apply:
   (A) All Scholarshare trust accounts of which an individual is a
beneficiary shall be treated as one account, except as otherwise
provided.
   (B) All distributions during a taxable year shall be treated as
one distribution.
   (C) The value of the participation agreement, income on the
participation agreement, and investment in the participation
agreement shall be computed as of the close of the calendar year in
which the taxable year begins.
   (2) A contribution by a for-profit or nonprofit entity, or by a
state or local government agency, for the benefit of an owner or
employee of that entity or a beneficiary whom the owner or employee
has the power to designate, including the owner or employee's minor
children, shall be included in the gross income of that owner or
employee in the year the contribution is made.
   (3) For purposes of this subdivision, "distribution" includes any
benefit furnished to a beneficiary under a participation agreement,
as provided in Article 19 (commencing with Section 69980) of Chapter
2 of Part 42 of the Education Code.
   (4) (A) Paragraph (1) shall not apply to that portion of any
distribution that, within 60 days of distribution, is transferred to
the credit of another beneficiary under the Scholarshare trust who is
a "member of the family," as that term is used in Section 529(e)(2)
of the Internal Revenue Code, as amended by Section 211 of the
Taxpayer Relief Act of 1997 (P.L. 105-34), of the former beneficiary
of that Scholarshare trust.
   (B) Any change in the beneficiary of an interest in the
Scholarshare trust shall not be treated as a distribution for
purposes of paragraph (1) if the new beneficiary is a "member of the
family," as that term is used in Section 529(e)(2) of the Internal
Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of
1997 (P.L. 105-34), of the former beneficiary of that Scholarshare
trust.
   (d) For purposes of determining adjusted gross income, Section 62
(a)(9) of the Internal Revenue Code shall not apply to any amount
forfeited upon distribution of an account created pursuant to a
participation agreement.
   (e) The amendments made to the Internal Revenue Code by Section
211 of the Taxpayer Relief Act of 1997 (P.L. 105-34) shall apply to
taxable years beginning on or after January 1, 1998.
  SEC. 23.  Section 17140.3 of the Revenue and Taxation Code is
amended to read:
   17140.3.  Section 529 of the Internal Revenue Code, relating to
qualified state tuition programs, shall apply, except as otherwise
provided.
   (a) Section 529 (a) of the Internal Revenue Code is modified as
follows:
   (1) By substituting the phrase "under this part and Part 11
(commencing with Section 23001)" in lieu of the phrase "under this
subtitle."
   (2) By substituting "Article 2 (commencing with Section 23731)" in
lieu of "Section 511."
   (b) A copy of the report required to be filed with the Secretary
of the Treasury under Section 529(d) of the Internal Revenue Code
shall be filed with the Franchise Tax Board at the same time and in
the same manner as specified in that section.
  SEC. 24.  Section 17142.5 of the Revenue and Taxation Code is
amended to read:
   17142.5.  (a) For purposes of the following provisions of the
Internal Revenue Code, a qualified hazardous duty area shall be
treated in the same manner as if it were a combat zone (as determined
under Section 112 of the Internal Revenue Code):
   (1) Section 2 (a)(3) (relating to a special rule where a deceased
spouse was in missing status).
   (2) Section 112 (relating to certain combat zone compensation of
members of the Armed Forces).
          (3) Section 692 (relating to income taxes of members of
Armed Forces upon death).
   (4) Section 7508 (relating to time for performing certain acts
postponed by reason of service in combat zone).
   (b) "Qualified hazardous duty area" means Bosnia and Herzegovina,
Croatia, or Macedonia, if, as of March 20, 1996, any member of the
Armed Forces of the United States is entitled to special pay under
Section 310 of Title 37 of the United States Code (relating to
special pay; duty subject to hostile fire or imminent danger) for
services performed in that country.  "Qualified hazardous duty area"
includes any country only during the period that entitlement is in
effect.  Solely for purposes of applying Section 7508 of the Internal
Revenue Code, in the case of an individual who is performing
services as part of Operation Joint Endeavor outside the United
States while deployed away from the individual's permanent duty
station, the term "qualified hazardous duty area" includes, during
the period for which that entitlement is in effect, any area in which
those services are performed.
  SEC. 25.  Section 17143 of the Revenue and Taxation Code is amended
to read:
   17143.  Sections 103 and 141 to 150, inclusive, of the Internal
Revenue Code, relating to interest on governmental obligations, shall
not apply.
  SEC. 26.  Section 17144 of the Revenue and Taxation Code is amended
to read:
   17144.  (a) Section 108(b)(2)(B) of the Internal Revenue Code,
relating to general business credit, is modified by substituting
"this part" in lieu of "Section 38 (relating to general business
credit)."
   (b) Section 108(b)(2)(G) of the Internal Revenue Code, relating to
foreign tax credit carryovers, shall not apply.
   (c) Section 108(b)(3)(B) of the Internal Revenue Code, relating to
credit carryover reduction, is modified by substituting "11.1 cents"
in lieu of "331/3 cents" in each place in which it appears.  In the
case where more than one credit is allowable under this part, the
credits shall be reduced on a pro rata basis.
   (d) Section 108(g)(3)(B) of the Internal Revenue Code, relating to
adjusted tax attributes, is modified by substituting "($9)" in lieu
of "($3)."
   (e) (1) If a taxpayer makes an election for federal income tax
purposes under Section 108(c) of the Internal Revenue Code, relating
to treatment of discharge of qualified real property business
indebtedness, a separate election shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5 and the federal
election shall be binding for purposes of this part.
   (2) If a taxpayer has not made an election for federal income tax
purposes under Section 108(c) of the Internal Revenue Code, relating
to treatment of discharge of qualified real property business
indebtedness, then the taxpayer shall not be allowed to make that
election for purposes of this part.
  SEC. 27.  Section 17218 of the Revenue and Taxation Code is
repealed.
  SEC. 28.  Section 17250 of the Revenue and Taxation Code is amended
to read:
   17250.  (a) Section 168 of the Internal Revenue Code is modified
as follows:
   (1) Any reference to "tax imposed by this chapter" in Section 168
of the Internal Revenue Code means "net tax," as defined in Section
17039.
   (2) (A) Section 168(e)(3) is modified to provide that any
grapevine, replaced in a vineyard in California in any taxable year
beginning on or after January 1, 1992, as a direct result of a
phylloxera infestation in that vineyard, or replaced in a vineyard in
California in any taxable year beginning on or after January 1,
1997, as a direct result of Pierce's Disease in that vineyard, shall
be "five-year property," rather than "10-year property."
   (B) Section 168(g)(3) of the Internal Revenue Code is modified to
provide that any grapevine, replaced in a vineyard in California in
any taxable year beginning on or after January 1, 1992, as a direct
result of a phylloxera infestation in that vineyard, or replaced in a
vineyard in California in any taxable year beginning on or after
January 1, 1997, as a direct result of Pierce's Disease in that
vineyard, shall have a class life of 10 years.
   (C) Every taxpayer claiming a depreciation deduction with respect
to grapevines as described in this paragraph shall obtain a written
certification from an independent state-certified integrated pest
management adviser, or a state agricultural commissioner or adviser,
that specifies that the replanting was necessary to restore a
vineyard infested with phylloxera or Pierce's Disease.  The taxpayer
shall retain the certification for future audit purposes.
   (3) Section 168(j) of the Internal Revenue Code, relating to
property on Indian reservations, shall not apply.
   (b) Section 169 of the Internal Revenue Code, relating to
amortization of pollution control facilities, is modified as follows:

   (1) The deduction allowed by Section 169 of the Internal Revenue
Code shall be allowed only with respect to facilities located in this
state.
   (2) The "state certifying authority," as defined in Section 169(d)
(2) of the Internal Revenue Code, means the State Air Resources
Board, in the case of air pollution, and the State Water Resources
Control Board, in the case of water pollution.
  SEC. 29.  Section 17268 of the Revenue and Taxation Code is amended
to read:
   17268.  (a) For each taxable year beginning on or after January 1,
1995, a taxpayer may elect to treat 40 percent of the cost of any
Section 17268 property as an expense that is not chargeable to the
capital account.  Any cost so treated shall be allowed as a deduction
for the taxable year in which the taxpayer places the Section 17268
property in service.
   (b) In the case of a husband or wife filing separate returns for a
taxable year in which a spouse is entitled to the deduction under
subdivision (a), the applicable amount shall be equal to 50 percent
of the amount otherwise determined under subdivision (a).
   (c) (1) An election under this section for any taxable year shall
meet both of the following requirements:
   (A) Specify the items of Section 17268 property to which the
election applies and the portion of the cost of each of those items
that is to be taken into account under subdivision (a).
   (B) Be made on the taxpayer's return of the tax imposed by this
part for the taxable year.
   (2) Any election made under this section, and any specification
contained in that election, may not be revoked except with the
consent of the Franchise Tax Board.
   (d) (1) For purposes of this section, "Section 17268 property"
means any recovery property that is each of the following:
   (A) Section 1245 property (as defined in Section 1245(a)(3) of the
Internal Revenue Code).
   (B) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (C) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (2) For purposes of paragraph (1), "purchase" means any
acquisition of property, but only if both of the following apply:
   (A) The property is not acquired from a person whose relationship
to the person acquiring it would result in the disallowance of losses
under Section 267 or 707(b) of the Internal Revenue Code (but, in
applying Section 267(b) and Section 267(c) of the Internal Revenue
Code for purposes of this section, Section 267(c)(4) of the Internal
Revenue Code shall be treated as providing that the family of an
individual shall include only his or her spouse, ancestors, and
lineal descendants).
   (B) The basis of the property in the hands of the person acquiring
it is not determined by either of the following:
   (i) In whole or in part by reference to the adjusted basis of the
property in the hands of the person from whom acquired.
   (ii) Under Section 1014 of the Internal Revenue Code, relating to
basis of property acquired from a decedent.
   (3) For purposes of this section, the cost of property does not
include that portion of the basis of the property that is determined
by reference to the basis of other property held at any time by the
person acquiring the property.
   (4) This section shall not apply to estates and trusts.
   (5) This section shall not apply to any property for which the
taxpayer may not make an election for the taxable year under Section
179 of the Internal Revenue Code because of the provisions of Section
179(d) of the Internal Revenue Code.
   (6) In the case of a partnership, the dollar limitation in
subdivision (f) shall apply at the partnership level and at the
partner level.
   (7) This section shall not apply to any property described in
Section 168(f) of the Internal Revenue Code, relating to property to
which Section 168 of the Internal Revenue Code does not apply.
   (e) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with the provisions of Section 7114 of the
Government Code.
   (2) "Taxpayer" means a taxpayer that conducts a trade or business
within a LAMBRA and, for the first two taxable years, has a net
increase in jobs (defined as 2,000 paid hours per employee per year)
of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA.  For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  If the
taxpayer has a net increase in jobs in the state, the credit shall be
allowed only if one or more full-time employees is employed within
the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (f) The aggregate cost of all Section 17268 property that may be
taken into account under subdivision (a) for any taxable year shall
not exceed the following applicable amounts for the taxable year of
the designation of the relevant LAMBRA and taxable years thereafter:



                                          The applicable
                                            amount is:
Taxable year of designation ............     $100,000
1st taxable year thereafter ............      100,000
2nd taxable year thereafter ............       75,000
3rd taxable year thereafter ............       75,000
Each taxable year thereafter ...........       50,000

   (g) This section shall apply only to property that is used
exclusively in a trade or business conducted within a LAMBRA.
   (h) (1) Any amounts deducted under subdivision (a) with respect to
property that ceases to be used in the trade or business within a
LAMBRA at any time before the close of the second taxable year after
the property was placed in service shall be included in income for
that year.
   (2) At the close of the second taxable year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (e), then the amount of the deduction previously
claimed shall be added to the taxpayer's taxable income for the
taxpayer's second taxable year.
   (i) Any taxpayer who elects to be subject to this section shall
not be entitled to claim for the same property the deduction under
Section 179 of the Internal Revenue Code, relating to an election to
expense certain depreciable business assets.
  SEC. 30.  Section 17270 of the Revenue and Taxation Code is amended
to read:
   17270.  (a) For purposes of Section 162(a)(2) of the Internal
Revenue Code, relating to travel expenses, all of the following shall
apply:
   (1) The place of residence of a member of the Legislature within
the district represented shall be considered the tax home.
   (2) The provisions of Section 162(h) of the Internal Revenue Code,
relating to state legislators' travel expenses away from home, shall
not be applied.
   (b) The provisions of Section 280C(a) of the Internal Revenue Code
(relating to rule for employment credits) shall not apply.
   (c) Section 280C(c)(3)(B) of the Internal Revenue Code is modified
to refer to Section 17041 in lieu of Section 11(b)(1) of the
Internal Revenue Code.
  SEC. 31.  Section 17274 of the Revenue and Taxation Code is amended
to read:
   17274.  (a) Notwithstanding any other provisions in this part to
the contrary, no deduction shall be allowed for interest, taxes,
depreciation, or amortization paid or incurred in the taxable year
with respect to substandard housing located in this state, except as
provided in subdivision (e).
   (b) "Substandard housing" means occupied dwellings from which the
taxpayer derives rental income or unoccupied or abandoned dwellings
for which both of the following apply:
   (1) Either of the following occurs:
   (A) For occupied dwellings from which the taxpayer derives rental
income, a state or local government regulatory agency has determined
that the housing violates state law or local codes dealing with
health, safety, or building.
   (B) For dwellings that are unoccupied or abandoned for at least 90
days, a state or local government regulatory agency has cited the
housing for conditions that constitute a serious violation of state
law or local codes dealing with health, safety, or building, and that
constitute a threat to public health and safety.
   (2) Either of the following occurs:
   (A) After written notice of violation by the regulatory agency,
specifying the applicability of this section, the housing has not
been brought to a condition of compliance within six months after the
date of the notice or the time prescribed in the notice, whichever
period is later.
   (B) Good faith efforts for compliance have not been commenced, as
determined by the regulatory agency.
   "Substandard housing" also means employee housing that has not,
within 30 days of the date of the written notice of violation or the
date for compliance prescribed in the written notice of violation,
been brought into compliance with the conditions stated in the
written notice of violation of the Employee Housing Act (Part 1
(commencing with Section 17000) of Division 13 of the Health and
Safety Code) issued by the enforcement agency that specifies the
application of this section.  The regulatory agency may, for good
cause shown, extend the compliance date prescribed in a violation
notice.
   (c) (1) When the period specified in paragraph (2) of subdivision
(b) has expired without compliance, the regulatory agency shall mail
to the taxpayer a notice of noncompliance.  The notice of
noncompliance shall be in a form and shall include information
prescribed by the Franchise Tax Board, shall be mailed by certified
mail to the taxpayer at the taxpayer's last known address, and shall
advise the taxpayer of (A) an intent to notify the Franchise Tax
Board of the noncompliance within 10 days unless an appeal is filed,
(B) where an appeal may be filed, and (C) a general description of
the tax consequences of the filing with the Franchise Tax Board.
Appeals shall be made to the same body and in the same manner as
appeals from other actions of the regulatory agency.  If no appeal is
made within 10 days or if after disposition of the appeal the
regulatory agency is sustained, the regulatory agency shall notify,
in writing, the Franchise Tax Board of the noncompliance.
   (2) The notice of noncompliance shall contain the legal
description or the lot and block numbers of the real property, the
assessor's parcel number, and the name of the owner of record as
shown on the latest equalized assessment roll.  In addition, the
regulatory agency shall, at the same time as notification of the
notice of noncompliance is sent to the Franchise Tax Board, record a
copy of the notice of noncompliance in the office of the recorder for
the county in which the substandard housing is located that includes
a statement of tax consequences that may be determined by the
Franchise Tax Board.  However, the failure to record a notice with
the county recorder does not relieve the liability of any taxpayer
nor does it create any liability on the part of the regulatory
agency.
   (3) The regulatory agency may charge the taxpayer a fee in an
amount not to exceed the regulatory agency's costs incurred in
recording any notice of noncompliance or issuing any release of that
notice.  The notice of compliance shall be recorded and shall serve
to expunge the notice of noncompliance.  The notice of compliance
shall contain the same recording information required for the notice
of noncompliance.  No deduction by the taxpayer, or any other
taxpayer who obtains title to the property subsequent to the
recordation of the notice of noncompliance, shall be allowed for the
items provided in subdivision (a) from the date of the notice of
noncompliance until the date the regulatory agency determines that
the substandard housing has been brought to a condition of
compliance.  The regulatory agency shall mail to the Franchise Tax
Board and the taxpayer a notice of compliance, which notice shall be
in the form and include the information prescribed by the Franchise
Tax Board.  In the event the period of noncompliance does not cover
an entire taxable year, the deductions shall be denied at the rate of
1/12 for each full month during the period of noncompliance.
   (4) If the property is owned by more than one owner or if the
recorded title is in the name of a fictitious owner, the notice
requirements provided in subdivision (b) and this subdivision shall
be satisfied for each owner if the notices are mailed to one owner or
to the fictitious name owner at the address appearing on the latest
available property tax bill.  However, notices made pursuant to this
subdivision do not relieve the regulatory agency from furnishing
taxpayer identification information required to implement this
section to the Franchise Tax Board.
   (d) For the purposes of this section, a notice of noncompliance
shall not be mailed by the regulatory agency to the Franchise Tax
Board if any of the following occur:
   (1) The housing was rendered substandard solely by reason of
earthquake, flood, or other natural disaster except where the
condition remains for more than three years after the disaster.
   (2) The owner of the substandard housing has secured financing to
bring the housing into compliance with those laws or codes that have
been violated, causing the housing to be classified as substandard,
and has commenced repairs or other work necessary to bring the
housing into compliance.
   (3) The owner of substandard housing that is not within the
meaning of housing accommodation as defined by subdivision (d) of
Section 35805 of the Health and Safety Code has done both of the
following:
   (A) Attempted to secure financing to bring the housing into
compliance with those laws or codes that have been violated, causing
the housing to be classified as substandard.
   (B) Been denied that financing solely because the housing is
located in a neighborhood or geographical area in which financial
institutions do not provide financing for rehabilitation of any of
that type of housing.
   (e) This section does not apply to deductions from income derived
from property rendered substandard solely by reason of a change in
applicable state or local housing standards unless the violations
cause substantial danger to the occupants of the property, as
determined by the regulatory agency which has served notice of
violation pursuant to subdivision (b).
   (f) The owner of substandard housing found to be in noncompliance
shall, upon total or partial divestiture of interest in the property,
immediately notify the regulatory agency of the name and address of
the person or persons to whom the property has been sold or otherwise
transferred and the date of the sale or transference.
   (g) By July 1 of each year, the regulatory agency shall report to
the appropriate legislative body of its jurisdiction all of the
following information, for the preceding calendar year, regarding its
activities to secure code enforcement, which shall be public
information:
   (1) The number of written notices of violation issued for
substandard housing under subdivision (b).
   (2) The number of violations complied with within the period
prescribed in subdivision (b).
   (3) The number of notices of noncompliance issued pursuant to
subdivision (c).
   (4) The number of appeals from those notices pursuant to
subdivision (c).
   (5) The number of successful appeals by owners.
   (6) The number of notices of noncompliance mailed to the Franchise
Tax Board pursuant to subdivision (c).
   (7) The number of cases in which a notice of noncompliance was not
sent pursuant to subdivision (d).
   (8) The number of extensions for compliance granted pursuant to
subdivision (b) and the mean average length of the extensions.
   (9) The mean average length of time from the issuance of a notice
of violation to the mailing of a notice of noncompliance to the
Franchise Tax Board where the notice is actually sent to the
Franchise Tax Board.
   (10) The number of cases where compliance is achieved after a
notice of noncompliance has been mailed to the Franchise Tax Board.
   (11) The number of instances of disallowance of tax deductions by
the Franchise Tax Board resulting from referrals made by the
regulatory agency.  This information may be filed in a supplemental
report in succeeding years as it becomes available.
   (h) The provisions of this section relating to substandard housing
consisting of abandoned or unoccupied dwellings do not apply to any
lender engaging in a "federally related transaction," as defined in
Section 11302 of the Business and Professions Code, who acquires
title through judicial or nonjudicial foreclosure, or accepts a deed
in lieu of foreclosure.  The exception provided in this subdivision
covers only substandard housing consisting of abandoned or unoccupied
dwellings involved in the federally related transaction.
  SEC. 32.  Section 17275.6 of the Revenue and Taxation Code is
repealed.
  SEC. 33.  Section 17276.5 of the Revenue and Taxation Code is
amended to read:
   17276.5.  (a) For each taxable year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 17276.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA.  For purposes of this subdivision, all of the
following shall apply:
   (1) A net operating loss shall not be a net operating loss
carryback for any taxable year, and a net operating loss for any
taxable year beginning on or after the date the area in which the
taxpayer conducts a trade or business is designated a LAMBRA shall be
a net operating loss carryover to each following taxable year that
ends before the LAMBRA expiration date or to each of the 15 taxable
years following the taxable year of loss, if longer.
   (2) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (3) "Taxpayer" means a person or entity that conducts a trade or
business within a LAMBRA and, for the first two taxable years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA and this state.  For
purposes of this paragraph:
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA.  For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero.  The
deduction shall be allowed only if the taxpayer has a net increase in
jobs in the state, and if one or more full-time employees is
employed within the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B), the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is
the number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (4) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 17276.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date.  The attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101) of Part 11, modified for purposes of this section as follows:

   (A) Loss shall be apportioned to a LAMBRA by multiplying total
loss from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is 2.
       (B) "The LAMBRA" shall be substituted for "this state."
   (5) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
   (6) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101) of Part 11.  That business
income shall be further apportioned to the LAMBRA in accordance with
Article 2 (commencing with Section 25120) of Chapter 17 of Part 11,
modified for purposes of this subdivision as follows:
   (A) Business income shall be apportioned to a LAMBRA by
multiplying total California business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.  For purposes of
this clause:
   (i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
   (ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
   (B) If a loss carryover is allowable pursuant to this section for
any taxable year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in paragraph (5) and allowing a net operating
loss deduction.
   (7) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
   (b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss.  If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
   (c) If a taxpayer is eligible to qualify under this section and
either Section 17276.2, 17276.4, or 17276.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
   (d) Notwithstanding Section 17276, the amount of the loss
determined under this section or Section 17276.2, 17276.4, or 17276.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 17276.1.
   (e) This section shall apply to taxable years beginning on or
after January 1, 1998.
  SEC. 34.  Section 17287 of the Revenue and Taxation Code is amended
to read:
   17287.  Section 269A of the Internal Revenue Code is modified by
substituting "California Personal Income Tax" for "Federal income
tax."
  SEC. 36.  Section 17330 of the Revenue and Taxation Code is
repealed.
  SEC. 37.  Section 17551 of the Revenue and Taxation Code is amended
to read:
   17551.  (a) Subchapter E of Chapter 1 of Subtitle A of the
Internal Revenue Code, relating to accounting periods and methods of
accounting, shall apply, except as otherwise provided.
   (b) Section 444(c)(1) of the Internal Revenue Code, relating to
effect of election, shall not apply.
  SEC. 38.  Section 17551.5 of the Revenue and Taxation Code is
repealed.
  SEC. 39.  Section 17552 of the Revenue and Taxation Code is amended
to read:
   17552.  (a) Notwithstanding Section 17565, a return for a period
of less than 12 months shall also be made when the Franchise Tax
Board terminates the taxpayer's taxable year under Section 19082
(relating to tax in jeopardy).
   (b) Section 443(c) of the Internal Revenue Code, relating to
adjustment in deduction for personal exemption, is modified by
substituting the phrase "the credit allowed under Section  17054" for
the phrase "the exemptions allowed as a deduction under section 151
(and any deduction in lieu thereof)."
  SEC. 40.  Section 17553 of the Revenue and Taxation Code is amended
to read:
   17553.  Section 454(c) of the Internal Revenue Code, relating to
matured United States Savings Bonds, shall not apply.
  SEC. 41.  Section 17563 of the Revenue and Taxation Code is
repealed.
  SEC. 42.  Section 17639 of the Revenue and Taxation Code is amended
to read:
   17639.  For purposes of subdivision (a) of Section 17637, a bond,
debenture, note, or certificate or other evidence of indebtedness
(hereinafter in this section referred to as "obligation") acquired by
a trust described in Section 401(a) of the Internal Revenue Code
shall not be treated as a loan made without the receipt of adequate
security if--
   (a) The obligation is acquired--
   (1) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange which is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on such a national securities exchange, at a price not
less favorable to the trust than the offering price for the
obligation as established by current bid and asked prices quoted by
persons independent of the issuer;
   (2) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
   (3) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
   (b) Immediately following acquisition of the obligation--
   (1) Not more than 25 percent of the aggregate amount of
obligations issued in the issue and outstanding at the time of
acquisition is held by the trust, and
   (2) At least 50 percent of the aggregate amount referred to in
paragraph (1) is held by persons independent of the issuer; and
   (c) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in Section 17637.
  SEC. 43.  Section 17640 of the Revenue and Taxation Code is amended
to read:
   17640.  Subdivision (a) of Section 17637 shall not apply to a loan
made by a trust described in Section 401(a) of the Internal Revenue
Code to the employer (or to a renewal of such a loan or, if the loan
is repayable upon demand, to a continuation of such a loan) if the
loan bears a reasonable rate of interest, and if (in the case of a
making or renewal)--
   (a) The employer is prohibited (at the time of the making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for such a loan, a
particular class or classes of his assets the value of which (at that
time) represents more than one-half of the value of all his or her
assets;
   (b) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other similar trustee had previously refused to give that written
approval; and
   (c) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
   (d) For purposes of subdivision (b), the term "trustee" means,
with respect to any trust for which there is more than one trustee
who is independent of the employer, a majority of those independent
trustees.  For purposes of subdivision (c), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to Section 17639.
  SEC. 44.  Section 17651 of the Revenue and Taxation Code is amended
to read:
   17651.  (a) There is hereby imposed for each taxable year on the
unrelated business taxable income (as defined in Section 23732) of
every trust a tax computed as provided in subdivision (e) of Section
17041.  In making that computation for purposes of this section, the
term "taxable income" as used in subdivisions (a) and (e) of Section
17041 shall be read as "unrelated business taxable income" as defined
in Section 23732.
   (b) The tax imposed by subdivision (a) shall apply in the case of
any trust which is exempt, except as provided in this article, from
taxation under this part by reason of Section 17631 and which, if it
were not for such exemption, would be subject to Chapter 9
(commencing with Section 17731) relating to estates, trusts,
beneficiaries, and decedents.
  SEC. 45.  Section 17671 of the Revenue and Taxation Code is amended
to read:
   17671.  Section 584 of the Internal Revenue Code, relating to
common trust funds, shall  apply, except as otherwise provided.
  SEC. 46.  Section 17732 of the Revenue and Taxation Code is amended
to read:
   17732.  Section 642(b) of the Internal Revenue Code, relating to
deduction for personal exemption, shall not apply.
  SEC. 47.  Section 17851 of the Revenue and Taxation Code is amended
to read:
   17851.  Subchapter K of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to partners and partnerships, shall apply,
except as otherwise provided.
  SEC. 48.  Section 17852 of the Revenue and Taxation Code is
repealed.
  SEC. 49.  Section 17853 of the Revenue and Taxation Code is amended
to read:
   17853.  Section 703(a)(2) of the Internal Revenue Code is modified
to additionally provide that the deduction for taxes provided in
Section 164(a) of the Internal Revenue Code with respect to taxes,
described in Section 18006, paid to another state shall not be
allowed to the partnership.
  SEC. 50.  Section 17857 of the Revenue and Taxation Code is amended
to read:
   17857.  Section 751(e) of the Internal Revenue Code, relating to
the limitation on tax attributable to deemed sales of Section 1248
stock, shall not apply.
  SEC. 51.  Section 17859 of the Revenue and Taxation Code is
repealed.
  SEC. 52.  Section 17860 of the Revenue and Taxation Code is
repealed.
  SEC. 53.  Section 17935 of the Revenue and Taxation Code is amended
to read:
   17935.  (a) For each taxable year beginning on or after January 1,
1997, every limited partnership doing business in this state (as
defined by Section 23101) and required to file a return under Section
18633 shall pay annually to this state a tax for the privilege of
doing business in this state in an amount equal to the applicable
amount specified in Section 23153.
   (b) (1) In addition to any limited partnership that is doing
business in this state and therefore is subject to the tax imposed by
subdivision (a), for each taxable year beginning on or after January
1, 1997, every limited partnership that has executed, acknowledged,
and filed a certificate of limited partnership with the Secretary of
State pursuant to Section 15621 of the Corporations Code, and every
foreign limited partnership that has registered with the Secretary of
State pursuant to Section 15692 of the Corporations Code, shall pay
annually the tax prescribed in subdivision (a). The tax shall be paid
for each taxable year, or part thereof, until a certificate of
cancellation is filed on behalf of the limited partnership with the
office of the Secretary of State pursuant to Section 15623 or 15696
of the Corporations Code.
   (2) If a taxpayer files a return with the Franchise Tax Board that
is designated its final return, that board shall notify the taxpayer
that the minimum tax is due annually until a certificate of
cancellation is filed with the Secretary of State pursuant to Section
15623 or 15696 of the Corporations Code.
   (c) The tax imposed under this section shall be due and payable on
the date the return is required to be filed under former Section
18432 or 18633.
   (d) For purposes of this section, "limited partnership" means any
partnership formed by two or more persons under the laws of this
state or any other jurisdiction and having one or more general
partners and one or more limited partners.
   (e) Notwithstanding subdivision (b), any limited partnership that
ceased doing business prior to January 1, 1997, filed a final return
with the Franchise Tax Board for a taxable year ending before January
1, 1997, filed a certificate of dissolution with the Secretary of
State pursuant to Section 15623 of the Corporations Code prior to
January 1, 1997, and files a certificate of cancellation with the
Secretary of State pursuant to that section of the Corporations Code
at any time during the period from the date of enactment of the act
adding this subdivision to the date that is not later than 60 days
after the date of the mailing of a notice of proposed deficiency
assessment of tax or the date of the mailing of a notice of tax due
(whichever is applicable) for any period following the date the
certificate of dissolution was filed with the Secretary of State,
shall not be subject to the tax imposed by this section for the
period following the date the certificate of dissolution was filed
with the Secretary of State.
  SEC. 54.  Section 18601 of the Revenue and Taxation Code is amended
to read:
   18601.  (a) Except as provided in subdivision (b) or (c), every
taxpayer subject to the tax imposed by Part 11 (commencing with
Section 23001) shall, on or before the 15th day of the third month
following the close of its income year, transmit to the Franchise Tax
Board a return in a form prescribed by it, specifying for the income
year, all the facts as it may by rule, or otherwise, require in
order to carry out this part.  A tax return, disclosing net income
for any income year, filed pursuant to Chapter 2 (commencing with
Section 23101) or Chapter 3 (commencing with Section 23501) of Part
11 shall be deemed filed pursuant to the proper chapter of Part 11
for the same income period, if the chapter under which the return is
filed is determined erroneous.
   (b) In the case of cooperative associations described in Section
24404, returns shall be filed on or before the 15th day of the ninth
month following the close of its income year.
   (c) In the case of taxpayers required to file a return for a short
period under Section 24634, the due date for the short period return
shall be the same as the due date of the federal tax return that
includes the net income of the taxpayer for that short period, or the
due date specified in subdivision (a) if no federal return is
required to be filed that would include the net income for that short
period.
   (d) For income years beginning on or after January 1, 1997, each
"S corporation" required to file a return under subdivision (a) for
any income year shall, on or before the day on which the return for
the income year was filed, furnish each person who is a shareholder
at any time during the income year a copy of the information shown on
the return.
   (e) For taxable or income years beginning on or after January 1,
1997:
   (1) A shareholder of an "S corporation" shall, on the shareholder'
s return, treat a Subchapter S item in a manner that is consistent
with the treatment of the item on the corporate return.
   (2) (A) In the case of any Subchapter S item, paragraph (1) shall
not apply to that item if both of the following occur:
   (i) Either of the following occurs:
   (I) The corporation has filed a return, but the shareholder's
treatment of the item on the shareholder's return is, or may be,
inconsistent with the treatment of the item on the corporate return.

   (II) The corporation has not filed a return.
   (ii) The shareholder files with the Franchise Tax Board a
statement identifying the inconsistency.
   (B) A shareholder shall be treated as having complied with clause
(ii) of subparagraph (A) with respect to a Subchapter S item if the
shareholder does both of the following:
   (i) Demonstrates to the satisfaction of the Franchise Tax Board
that the treatment of the Subchapter S item on the shareholder's
return is consistent with the treatment of the item on the schedule
furnished to the shareholder by the corporation.
   (ii) Elects to have this paragraph apply with respect to that
item.
   (3) In any case described in subclause (I) of clause (i) of
subparagraph (A) of paragraph (2), and in which the shareholder does
not comply with clause (ii) of subparagraph (A) of paragraph (2), any
adjustment required to make the treatment of the items by the
shareholder consistent with the treatment of the items on the
corporate return shall be treated as arising out of a mathematical
error and assessed and collected under Section 19051.
   (4) For purposes of this subdivision, "Subchapter S item" means
any item of an "S corporation" to the extent provided by regulations
that, for purposes of Part 10 (commencing with Section 17001) or this
part, the item is more appropriately determined at the corporation
level than at the shareholder level.
   (5) The penalties imposed under Article 7 (commencing with Section
19131) of Chapter 4 shall apply in the case of a shareholder's
negligence in connection with, or disregard of, the requirements of
this section.
  SEC. 54.5.  Section 18604 of the Revenue and Taxation Code is
amended to read:
   18604.  (a) The Franchise Tax Board may grant a reasonable
extension of time for filing any return, declaration, statement, or
other document required by Part 11 (commencing with Section 23001),
in the manner and form as the Franchise Tax Board may determine.  No
extension or extensions shall aggregate more than seven months from
the due date for filing the return.
   (b) An extension of time granted pursuant to this section is not
an extension of time for payment of tax required to be paid on or
before the due date of the return without regard to extension.
Underpayment of tax penalties shall be imposed as provided by law
without regard to any extension granted under this section.
  SEC. 55.  Section 18605 of the Revenue and Taxation Code is
repealed.
  SEC. 56.  Section 18622 of the Revenue and Taxation Code is amended
to read:
   18622.  (a) If any item required to be shown on a federal tax
return, including any gross income, deduction, penalty, credit, or
tax for any year of any taxpayer is changed or corrected by the
Commissioner of Internal Revenue or other officer of the United
States or other competent authority, or where a renegotiation of a
contract or subcontract with the United States results in a change in
gross income or deductions, that taxpayer shall report each change
or correction, or the results of the renegotiation, within six months
after the date of each final federal determination of the change or
correction or renegotiation, or as required by the Franchise Tax
Board, and shall concede the accuracy of the determination or state
wherein it is erroneous.  For any individual subject to tax under
Part 10 (commencing with Section 17001), changes or corrections need
not be reported unless they increase the amount of tax payable under
Part 10 (commencing with Section 17001) for any year.
   (b) Any taxpayer filing an amended return with the Commissioner of
Internal Revenue shall also file within six months thereafter an
amended return with the Franchise Tax Board which shall contain any
information as it shall require.  For any individual subject to tax
under Part 10 (commencing with Section 17001), an amended return need
not be filed unless the change therein would increase the amount of
tax payable under Part 10 (commencing with Section 17001) for any
year.
   (c) Notification of a change or correction by the Commissioner of
Internal Revenue or other officer of the United States or other
competent authority, or renegotiation of a contract or subcontract
with the United States that results in a change in any item or the
filing of an amended return must be sufficiently detailed to allow
computation of the resulting California tax change and shall be
reported in the form and manner as prescribed by the Franchise Tax
Board.
   (d) For purposes of this part, the date of each final federal
determination shall be the date on which each adjustment or
resolution resulting from an Internal Revenue Service examination is
assessed pursuant to Section 6203 of the Internal Revenue Code.
  SEC. 57.  Section 18662 of the Revenue and Taxation Code is amended
to read:
   18662.  (a) The Franchise Tax Board may, by regulation, require
any person, in whatever capacity acting (including lessees or
mortgagors of real or personal property, fiduciaries, employers, and
any officer or department of the state or any political subdivision
or agency of the state, or any city organized under a freeholder's
charter, or any political body not a subdivision or agency of the
state), having the control, receipt, custody, disposal, or payment of
items of income specified in subdivision (b), to withhold an amount,
determined by the Franchise Tax Board to reasonably represent the
amount of tax due when the items of income are included with other
income of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at the time as it may designate.
   (b) The items of income referred to in subdivision (a) are
interest, dividends, rents, prizes and winnings, premiums, annuities,
emoluments, compensation for services, including bonuses,
partnership income or gains, and other fixed or determinable annual
or periodical gains, profits, and income.
   (c) The Franchise Tax Board may authorize the tax under
subdivision (a) to be deducted and withheld from the interest upon
any securities the owners of which are not known to the withholding
agent.
   (d) Any person failing to withhold from any payments any amounts
required by subdivision (a) to be withheld is liable for the amount
withheld or the amount of taxes due from the person to whom the
payments are made to an extent not in excess of the amounts required
to be withheld, whichever is greater, unless it is shown that the
failure to withhold is due to reasonable cause.
   (e) (1) In the case of any disposition of a California real
property interest by a person (but not a partnership as determined in
accordance with Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code, or a corporation), when the return required to
be filed with the Secretary of the Treasury under Section 6045(e) of
the Internal Revenue Code indicates, or the authorization for the
disbursement of the transaction's funds instructs, that the funds be
disbursed either to a transferor with a last known street address
outside the boundaries of this state at the time of the transfer of
the title to the California real property or to the financial
intermediary of the transferor, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed.
   (2) In the case of any disposition of a California real property
interest by a corporation, the transferee shall be required to
withhold an amount equal to 31/3 percent of the sales price of the
California real property conveyed, if the corporation immediately
after the transfer of the title to the California real property has
no permanent place of business in California.  For purposes of this
subdivision, a corporation has no permanent place of business in
California if all of the following apply:
   (A) It is not organized and existing under the laws of California.

   (B) It does not qualify with the office of the Secretary of State
to transact business in California.
   (C) It does not maintain and staff a permanent office in
California.
   (3) Notwithstanding any other provision of this subdivision, all
of the following shall apply:
   (A) No transferee shall be required to withhold any amount under
this subdivision if the sales price of the California real property
conveyed does not exceed one hundred thousand dollars ($100,000).
   (B) No transferee shall be required to withhold any amount under
this subdivision unless written notification of the withholding
requirements of this subdivision has been provided by the real estate
escrow person.
   (C) No transferee shall be required to withhold under this
subdivision when the transferor is a bank acting as trustee other
than a trustee of a deed of trust.
   (D) No transferee shall be required to withhold under this
subdivision when the transferee is a corporate beneficiary under a
mortgage or beneficiary under a deed of trust and the California real
property is acquired in judicial or nonjudicial foreclosure or by a
deed in lieu of foreclosure.
   (E) No transferee shall be required to withhold any amount under
this subdivision if the transferee, in good faith and based on all
the information of which he or she has knowledge, relies on a written
certificate executed by the transferor, certifying under penalty of
perjury, any of the following:
   (i) That the transferor is a resident of California.
   (ii) That the California real property being conveyed is the
principal residence of the transferor, within the meaning of Section
121 of the Internal Revenue Code.
   (iii) The transferor, if a corporation, has a permanent place of
business in California.
   (4) (A) At the request of the transferor, the Franchise Tax Board
may authorize that a reduced amount or no amount be withheld under
this subdivision if the Franchise Tax Board determines that to
substitute a reduced amount or no amount shall not jeopardize the
collection of tax imposed by Part 10 (commencing with Section 17001)
or Part 11 (commencing with Section 23001).  If the transferor
provides documentation sufficient for the Franchise Tax Board to
determine the actual gain required to be recognized on the
transaction, the Franchise Tax Board may authorize a reduced amount
based on the amount of the gain, as determined, which will result in
a sum which is substantially equivalent to the amount
                          of tax reasonably estimated to be due under
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001) from the inclusion of the gain in the gross amount of
the transferor.
   (B) Within 45 days after receiving a request that a reduced amount
or no amount be withheld, the Franchise Tax Board shall either
authorize a reduced amount or no amount, or deny the request.
   (C) In the case where the parties to the transaction are
requesting that a reduced amount or no amount be withheld and the
response by the Franchise Tax Board to the request has not been
received at the time title to the California real property is
transferred, the parties may direct the real estate escrow person to
hold in trust for 45 days the amount required to be withheld under
this subdivision.  The parties shall instruct the real estate escrow
person that at the end of 45 days the real estate escrow person shall
remit the amount withheld to the Franchise Tax Board in accordance
with this section, unless the Franchise Tax Board has authorized that
a reduced amount or no amount be withheld.
   (5) Amounts withheld and payments made in accordance with this
subdivision shall be reported and remitted to the Franchise Tax Board
in the form and at the time as the Franchise Tax Board shall
determine.
   (6) "California real property interest" means an interest in real
property located in California and defined in Section 897(c)(1)(A)(i)
of the Internal Revenue Code.
   (7) For purposes of this subdivision, "financial intermediary"
means an agent for the purpose of receiving and transferring funds to
a principal.
   (8) For purposes of this subdivision, "real estate escrow person"
means any of the following persons involved in the real estate
transaction:
   (A) The person (including any attorney, escrow company, or title
company) responsible for closing the transaction.
   (B) If no other person described in subparagraph (A) is
responsible for closing the transaction, then any other person who
receives and disburses the consideration or value for the interest or
property conveyed.
   (9) (A) Unless the real estate escrow person provides "assistance,"
it shall be unlawful for any real estate escrow person to charge any
customer for complying with the requirements of this subdivision.
   (B) For purposes of this paragraph, "assistance" includes, but is
not limited to, helping the parties clarify with the Franchise Tax
Board the issue of whether withholding is required under this
subdivision, helping the parties request that the Franchise Tax Board
authorize a reduced amount or no amount be withheld under this
subdivision, or, upon request of the parties, withholding an amount
under this subdivision and remitting the amount to the Franchise Tax
Board.
   (C) For purposes of this paragraph, "assistance" does not include
providing the written notification of the withholding requirements of
this subdivision, or providing the certification that either:
   (i) The transferor is a resident of California or that the
California real property being conveyed is the transferor's principal
residence.
   (ii) The transferor, if a corporation, has a permanent place of
business in California.
   (D) In a case where the real estate escrow person provides
"assistance" in complying with the withholding requirements of this
subdivision, it shall be unlawful for the real estate escrow person
to charge any customer a fee that exceeds forty-five dollars ($45).
   (10) For purposes of this subdivision, "sales price" means the sum
of all of the following:
   (A) The cash paid, or to be paid.  The term "cash paid, or to be
paid" does not include stated or unstated interest or original issue
discount (as determined by Sections 1271 to 1275, inclusive, of the
Internal Revenue Code).
   (B) The fair market value of other property transferred, or to be
transferred.
   (C) The outstanding amount of any liability assumed by the
transferee or to which the California real property interest is
subject immediately before and after the transfer.
   (f) Whenever any person has withheld any amount pursuant to this
section, the amount so withheld shall be held in trust for the State
of California.  The amount of the fund shall be assessed, collected,
and paid in the same manner and subject to the same provisions and
limitations (including penalties) as are applicable with respect to
the taxes imposed by Part 10 (commencing with Section 17001), Part 11
(commencing with Section 23001), or this part.
   (g) Withholding shall not be required under this section with
respect to wages, salaries, fees, or other compensation paid by a
corporation for services performed in California for that corporation
to a nonresident corporate director for director services, including
attendance at a board of directors' meeting.
   (h) In the case of any payment described in subdivision (g), the
person making the payment shall do each of the following:
   (1) File a return with the Franchise Tax Board at the time and in
the form and manner specified by the Franchise Tax Board.
   (2) Provide the payee with a statement at the time and in the form
and manner specified by the Franchise Tax Board.
  SEC. 58.  Section 18711 of the Revenue and Taxation Code is amended
to read:
   18711.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
State Children's Trust Fund.
   (b) The contribution shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation under subdivision (a) shall be made for any
taxable year on the initial return for that taxable year, and once
made shall be irrevocable.  In the event that payments and credits
reported on the return, together with any other credits associated
with the taxpayer's account do not exceed the tax liability, if any,
shown thereupon, the return shall be treated as though no designation
has been made.
   (d) The Franchise Tax Board shall revise the form of the return to
include a space labeled the "State Children's Trust Fund for the
Prevention of Child Abuse" to allow for the designation permitted
under subdivision (a).
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 59.  Section 18721 of the Revenue and Taxation Code is amended
to read:
   18721.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Fund for Senior Citizens established by Section 18722 to
be used to conduct the sessions of the California Senior Legislature
and to support its ongoing activities on behalf of older persons.
   (b) The contribution shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation under subdivision (a) shall be made for any
taxable year on  the initial return for that taxable year, and once
made shall be irrevocable.
   In the event that payments and credits reported on the return,
together with any other credits associated with the individual's
account do not exceed the tax liability, if any, shown thereupon, the
return shall be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Fund for Senior Citizens"
to allow for the designation permitted under subdivision (a).  The
forms shall also include in the instructions the information that the
contribution may be in the amount of one dollar ($1) or more and
that the contribution will be used to conduct the sessions of the
California Senior Legislature and to support its ongoing activities
on behalf of older persons.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 60.  Section 18741 of the Revenue and Taxation Code is amended
to read:
   18741.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
Endangered and Rare Fish, Wildlife, and Plant Species Conservation
and Enhancement Account in the Fish and Game Preservation Fund.
   (b) The contribution shall be in full dollar amounts and may be
made individually by each signatory on a joint return.
   (c) A designation under subdivision (a) shall be made for any
taxable year on the initial return for that taxable year, and once
made shall be irrevocable.  If payments and credits reported on the
return, together with any other credits associated with the
individual's account, do not exceed the tax liability, if any, shown
thereon, the return shall be treated as though no designation has
been made.
   (d) The Franchise Tax Board shall revise the form of the return to
include a space labeled "Rare and Endangered Species Preservation
Program" to allow for the designation permitted under subdivision
(a).
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 61.  Section 18763 of the Revenue and Taxation Code is amended
to read:
   18763.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Alzheimer's Disease and Related Disorders Research Fund,
that is established by Section 18764.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation under subdivision (a) shall be made for any
taxable year on the individual return for that taxable year, and once
made shall be irrevocable.  In the event that payments and credits
reported on the return, together with any other credits associated
with the individual's account, do not exceed the individual's tax
liability, the return shall be treated as though no designation has
been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "Alzheimer's Disease/Related Disorders
Fund" to allow for the designation permitted under subdivision (a).
The forms shall also include in the instructions information that
the contribution may be in the amount of one dollar ($1) or more and
that the contribution shall be used to conduct research relating to
the cure and treatment of Alzheimer's disease.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 62.  Section 18782 of the Revenue and Taxation Code is amended
to read:
   18782.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
D.A.R.E.  California (Drug Abuse Resistance Education) Fund, which is
established by Section 18783.  That designation is to be used as a
voluntary checkoff on the tax return.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation shall be made for any taxable year on the
initial return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "D.A.R.E. California (Drug Abuse
Resistance Education) Fund" to allow for the designation permitted.
The forms shall also include in the instructions information that the
contribution may be in the amount of one dollar ($1) or more and
that the contribution shall be used for purposes of drug abuse
resistance education.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 63.  Section 18793 of the Revenue and Taxation Code is amended
to read:
   18793.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Breast Cancer Research Fund, which is established by
Section 18794.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation shall be made for any taxable year on the
individual return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the
individual's account, do not exceed the individual's liability, the
return shall be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Breast Cancer Research
Fund" to allow for the designation permitted.  The forms shall also
include in the instructions information that the contribution may be
in the amount of one dollar ($1) or more and that the contribution
shall be used to conduct research relating to the cure, screening,
and treatment of breast cancer.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 64.  Section 18801 of the Revenue and Taxation Code is amended
to read:
   18801.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Firefighters' Memorial Fund, which is established by
Section 18802.  That designation is to be used as a voluntary
checkoff on the tax return.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation shall be made for any taxable year on the
initial return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Firefighters' Memorial
Fund" to allow for the designation permitted.  The forms shall also
include in the instructions information that the contribution may be
in the amount of one dollar ($1) or more and that the contribution
shall be used to construct a memorial to California firefighters on
the grounds of the State Capitol.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 65.  Section 18812 of the Revenue and Taxation Code is amended
to read:
   18812.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Public School Library Protection Fund, which is
established by Section 18813.  That designation is to be used as a
voluntary checkoff on the tax return.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation shall be made for any taxable year on the
initial return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Public School Library
Protection Fund" to allow for the designation permitted.  The forms
shall also include in the instructions information that the
contribution may be in the amount of one dollar ($1) or more and that
the contribution shall be used to purchase books and library media
technology for schools as described in Sections 18177 and 18178 of
the Education Code.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 66.  Section 18821 of the Revenue and Taxation Code is amended
to read:
   18821.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Mexican American Veterans' Memorial Beautification and
Enhancement Account in the General Fund established by Section 1340
of the Military and Veterans Code.  That designation is to be used as
a voluntary checkoff on the tax return only after the Franchise Tax
Board has been notified in writing that construction of the veterans'
memorial has commenced.  If the Franchise Tax Board has been
notified in writing by the Veterans' Memorial Commission at any time
during the taxable year that construction has commenced, the
California Mexican American Veterans' Memorial Beautification and
Enhancement Account shall first appear for contribution on the tax
return filed for the taxable year beginning on or after January 1 of
that year.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on the joint return.
   (c) A designation under subdivision (a) shall be made on the
initial return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Mexican American Veterans'
Memorial" to allow for the designation permitted under subdivision
(a).  The forms shall also include in the instructions information
that the contribution may be in the amount of one dollar ($1) or more
and that the contribution shall be used to beautify and enhance an
existing memorial.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 67.  Section 18841 of the Revenue and Taxation Code is amended
to read:
   18841.  (a) Any individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
California Military Museum Fund, which is established by Section
18842.  That designation is to be used as a voluntary checkoff on the
tax return.
   (b) The contributions shall be in full dollar amounts and may be
made by the signatory on an individual return or individually by each
signatory on a joint return.
   (c) A designation shall be made for any taxable year on the
initial return for that taxable year, and once made shall be
irrevocable.  In the event that payments and credits reported on the
return, together with any other credits associated with the taxpayer'
s account, do not exceed the taxpayer's liability, the return shall
be treated as though no designation has been made.  If the amount
available for designation is insufficient to satisfy the total amount
designated, the amount designated shall be adjusted to correspond to
the amount available for designation.
   (d) The Franchise Tax Board shall revise the forms of the return
to include a space labeled the "California Military Museum Fund" to
allow for the designation permitted.  The forms shall also include in
the instructions information that the contribution may be in the
amount of one dollar ($1) or more and that the contribution shall be
used to operate the California Military Museum.  It is the intent of
the Legislature that tax returns for taxable years during which this
article remains in effect shall include a space for the California
Military Museum Fund.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 68.  Section 18851 of the Revenue and Taxation Code is amended
to read:
   18851.  (a) An individual may designate on the tax return that a
contribution in excess of the tax liability, if any, be made to the
Emergency Food Assistance Program Fund, which is established by
Section 18852.  That designation is to be used as a voluntary
checkoff on the tax return.
   (b) The contributions shall be in full dollar amounts and may be
made individually by each signatory on a joint return.
   (c) A designation shall be made for any taxable year on the
initial return for that taxable year and once made is irrevocable.
If payments and credits reported on the return, together with any
other credits associated with the taxpayer's account do not exceed
the taxpayer's liability, the return shall be treated as though no
designation has been made.
   (d) The Franchise Tax Board shall revise the form of the return to
include a space labeled the "Emergency Food Assistance Program Fund"
to allow for the designation permitted.  The form shall also include
in the instructions information that the contribution may be in the
amount of one dollar ($1) or more and that the contribution shall be
used for the Emergency Food Assistance Program.
   (e) A deduction shall be allowed under Article 6 (commencing with
Section 17201) of Chapter 3 of Part 10 for any contribution made
pursuant to subdivision (a).
  SEC. 69.  Section 18871 of the Revenue and Taxation Code is amended
to read:
   18871.  In implementing this chapter, all of the following
requirements shall apply:
   (a) Unless otherwise specifically required by law, each voluntary
contribution fund or account established by this chapter shall be
included on the forms of the return through the taxable year
immediately preceding the year of repeal of the article establishing
that voluntary contribution fund or account.
   (b) Notwithstanding the repeal of any article of this chapter, the
voluntary contribution fund or account specified in that article
shall continue in effect until December 31 of the year of the repeal
of that article, and any contribution designated pursuant to that
article on a timely filed initial return for the taxable year
immediately preceding the date of repeal shall be transferred and
disbursed, and all costs incurred by the Franchise Tax Board and
Controller in connection with the transfer and disbursement of these
contribution amounts shall continue to be paid, in accordance with
that article as it read immediately prior to its repeal.
   (c) Unless otherwise specifically required by law, a contribution
made to any voluntary contribution fund or account established by
this chapter shall be subject to the following provisions:
   (1) In the event that no designee is specified, the contribution
shall, after reimbursement of the direct actual costs of the
Franchise Tax Board for the collection and administration of
contributions made under this article, be transferred to the General
Fund.
   (2) In the event an individual designates a contribution to more
than one account or fund listed on the tax return, and the amount
available is insufficient to satisfy the total amount designated, the
contribution shall be allocated among the designees on a pro rata
basis.
  SEC. 70.  Section 19023 of the Revenue and Taxation Code is amended
to read:
   19023.  For purposes of this article, in the case of a
corporation, other than a bank or financial corporation, or an
organization described in Section 23731, the term "estimated tax"
means the amount which the corporation or organization described in
Section 23731 estimates as the amount of the tax imposed by Part 11
(commencing with Section 23001) and the amount of its liability for
the tax of each wholly owned subsidiary under Section 23800.5; but in
no event shall the estimated tax of a corporation subject to the tax
imposed by Article 2 (commencing with Section 23151) of Chapter 2 of
Part 11 be less than the minimum tax prescribed in Section 23153.
  SEC. 70.5.  Section 19053 of the Revenue and Taxation Code is
repealed.
  SEC. 71.  Section 19059 of the Revenue and Taxation Code is amended
to read:
   19059.  (a) If a taxpayer is required by subdivision (a) of
Section 18622 to report a change or correction by the Commissioner of
Internal Revenue or other officer of the United States or other
competent authority and does report the change or correction within
six months after the final federal determination, or the Internal
Revenue Service reports that change or correction within six months
after the final federal determination, a notice of proposed
deficiency assessment resulting from those adjustments may be mailed
to the taxpayer within two years from the date when the notice is
filed with the Franchise Tax Board by the taxpayer or the Internal
Revenue Service, or within the periods provided in Section 19057,
19058, or 19065, whichever period expires later.
   (b) If a taxpayer is required by subdivision (b) of Section 18622
to file an amended return and does file the return within six months
of filing an amended return with the Commissioner of Internal
Revenue, a notice of proposed deficiency assessment in excess of the
self-assessed tax on the amended return, and resulting from the
adjustments may be mailed to the taxpayer within two years from the
date when the amended return is filed with the Franchise Tax Board by
the taxpayer, or within the periods provided in Section 19057,
19058, or 19065, whichever period expires later.
  SEC. 72.  Section 19060 of the Revenue and Taxation Code is amended
to read:
   19060.  (a) If a taxpayer fails to report a change or correction
by the Commissioner of Internal Revenue or other officer of the
United States or other competent authority or fails to file an
amended return as required by Section 18622, a notice of proposed
deficiency assessment resulting from the adjustment may be mailed to
the taxpayer at any time.
   (b) If, after the six-month period required in Section 18622, a
taxpayer or the Internal Revenue Service reports a change or
correction by the Commissioner of Internal Revenue or other officer
of the United States or other competent authority
                       or files an amended return as required by
Section 18622, a notice of proposed deficiency assessment resulting
from the adjustment may be mailed to the taxpayer within four years
from the date the taxpayer or the Internal Revenue Service notifies
the Franchise Tax Board of that change or correction or files that
return.
  SEC. 73.  Section 19089 of the Revenue and Taxation Code is amended
to read:
   19089.  (a) Every trustee in a case under Title 11 of the United
States Code, receiver, assignee for the benefit of creditors or like
fiduciary shall give notice of qualification as such to the Franchise
Tax Board in the manner and at the time that may be required by
regulations of the Franchise Tax Board.  The Franchise Tax Board may
by regulation provide for any exemptions from the requirements of
this section that the Franchise Tax Board deems proper.
   (b) If the regulations issued pursuant to this section require the
giving of any notice by any fiduciary in any case under Title 11 of
the United States Code, or by a receiver in any other court
proceeding to the Franchise Tax Board of qualification as such, the
running of the period of limitations for mailing a notice of proposed
deficiency assessment shall be suspended for the period from the
date of the  institution of the proceeding to a date 30 days after
the date upon which the notice from the receiver or other fiduciary
is received by the Franchise Tax Board; but the suspension under this
section shall in no case be for a period in excess of two years.
  SEC. 74.  Section 19106 of the Revenue and Taxation Code is amended
to read:
   19106.  Except as provided in Section 19111, interest shall be
imposed under Section 19101 with respect to any assessable penalty,
additional amount, or addition to tax imposed under this article, as
follows:
   (a) In the case of a penalty, additional amount, or addition to
tax which, when assessed, is due and payable on notice and demand,
other than a penalty imposed under Section 19131 (relating to failure
to file a return on or before the due date), Section 19132 (relating
to underpayment of tax), or Section 19164 (relating to imposition of
the accuracy-related penalty), interest shall be imposed from the
date of the notice and demand to the date of payment.
   (b) In the case of a penalty, additional amount, or addition to
tax which is initially assessed as a deficiency, other than a penalty
imposed under Section 19131 (relating to failure to file a return on
or before the due date), Section 19132 (relating to underpayment of
tax), or Section 19164 (relating to imposition of the
accuracy-related penalty), interest shall be imposed from the date of
the notice of proposed deficiency assessment to the date of payment.

   (c) In the case of a penalty or addition to tax imposed by Section
19131 (relating to failure to file a return on or before the due
date), Section 19132 (relating to underpayment of tax), or Section
19164 (relating to imposition of the accuracy-related penalty), for
the period that--
   (1) Begins on the date on which the return of the tax with respect
to which that penalty is imposed is required to be filed (including
any extensions), and
   (2) Ends on the date of payment of that penalty or addition to
tax.
  SEC. 75.  Section 19145 of the Revenue and Taxation Code is amended
to read:
   19145.  For purposes of Section 19142, the period of the
underpayment shall run from the date the installment was required to
be made to whichever of the following dates is the earlier:
   (a) The 15th day of the third month following the close of the
income year, except in the case of an organization described in
Section 23731 subject to the tax imposed under Section 23731, in
which case "fifth" shall be substituted for "third."
   (b) With respect to any portion of the underpayment, the date on
which that portion is paid.  For purposes of this subdivision, a
payment of estimated tax on any installment date shall be considered
a payment of any previous underpayment only to the extent the payment
exceeds the amount of the installment determined under subdivision
(a) of Section 19144 for the installment date.
  SEC. 75.3.  Section 19151 of the Revenue and Taxation Code is
amended to read:
   19151.  Notwithstanding Sections 19142 to 19150, inclusive, the
addition to the tax with respect to underpayment of any installment
shall not be imposed on an exempt organization described in Section
23731 whose exemption is retroactively revoked unless the
organization described in Section 23731 has notice that the estimated
tax should have been paid.  The denial of the organization's
exemption application or the revocation of its exemption by the
Internal Revenue Service normally satisfies the notice requirement.

  SEC. 75.5.  Section 19311 of the Revenue and Taxation Code is
amended to read:
   19311.  (a) If a change or correction is made or allowed by the
Commissioner of Internal Revenue or other officer of the United
States or other competent authority, a claim for credit or refund
resulting from the adjustment may be filed by the taxpayer within two
years from the date of the final federal determination (as defined
in Section 18622), or within the period provided in Section 19306,
19307, or 19308, whichever period expires later.
   (b) This section shall apply to any federal determination that
becomes final on or after January 1, 1993.
  SEC. 76.  Section 19411 of the Revenue and Taxation Code is amended
to read:
   19411.  The Franchise Tax Board may recover any refund or credit
or any portion thereof which is erroneously made or allowed, together
with interest at the adjusted annual rate established pursuant to
Section 19521 from the date demand for recovery was made, in an
action brought in a court of competent jurisdiction in the County of
Sacramento in the name of the people of the State of California
within whichever of the following periods expires the later:
   (a) Two years after the refund or credit was made.
   (b) During the period within which the Franchise Tax Board may
mail a notice of proposed deficiency assessment.
   (c) In the case of a corporation, interest shall be computed from
the date the refund was made or the credit allowed, instead of the
date a demand for recovery was made.
  SEC. 77.  Section 23043 of the Revenue and Taxation Code is
repealed.
  SEC. 78.  Section 23153 of the Revenue and Taxation Code, as
amended by Chapter 64 of the Statutes of 1999, is amended to read:
   23153.  (a) Every corporation described in subdivision (b) shall
be subject to the minimum franchise tax specified in subdivision (d)
from the earlier of the date of incorporation, qualification, or
commencing to do business within this state, until the effective date
of dissolution or withdrawal as provided in Section 23331 or, if
later, the date the corporation ceases to do business within the
limits of this state.
   (b) Unless expressly exempted by this part or the California
Constitution, subdivision (a) shall apply to each of the following:
   (1) Every corporation that is incorporated under the laws of this
state.
   (2) Every corporation that is qualified to transact intrastate
business in this state pursuant to Chapter 21 (commencing with
Section 2100) of Division 1 of Title 1 of the Corporations Code.
   (3) Every corporation that is doing business in this state.
   (c) The following entities are not subject to the minimum
franchise tax specified in this section:
   (1) Credit unions.
   (2) Nonprofit cooperative associations organized pursuant to
Chapter 1 (commencing with Section 54001) of Division 20 of the Food
and Agricultural Code that have been issued the certificate of the
board of supervisors prepared pursuant to Section 54042 of the Food
and Agricultural Code.  The association shall be exempt from the
minimum franchise tax for five consecutive income years, commencing
with the first income year for which the certificate is issued
pursuant to subdivision (b) of Section 54042 of the Food and
Agricultural Code.  This paragraph only applies to nonprofit
cooperative associations organized on or after January 1, 1994.
   (d) (1) Except as provided in paragraph (2), corporations subject
to the minimum franchise tax shall pay annually to the state a
minimum franchise tax of eight hundred dollars ($800).
   (2) The minimum franchise tax shall be twenty-five dollars ($25)
for each of the following:
   (A) A corporation formed under the laws of this state whose
principal business when formed was gold mining, which is inactive and
has not done business within the limits of the state since 1950.
   (B) A corporation formed under the laws of this state whose
principal business when formed was quicksilver mining, which is
inactive and has not done business within the limits of the state
since 1971, or has been inactive for a period of 24 consecutive
months or more.
   (3) For purposes of paragraph (2), a corporation shall not be
considered to have done business if it engages in other than mining.

   (e) Notwithstanding subdivision (a), for income years beginning on
or after January 1, 1999, and before January 1, 2000, every
"qualified new corporation" shall pay annually to the state a minimum
franchise tax of five hundred dollars ($500) for the second taxable
year.  This subdivision shall apply to any corporation that is a
qualified new corporation and is incorporated on or after January 1,
1999, and before January 1, 2000.
   (1) The determination of the gross receipts of a corporation, for
purposes of this subdivision, shall be made by including the gross
receipts of each member of the commonly controlled group, as defined
in Section 25105, of which the corporation is a member.
   (2) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
   (3) "Qualified new corporation" means a corporation that is
incorporated under the laws of this state or has qualified to
transact intrastate business in this state, that begins business
operations at or after the time of its incorporation and that
reasonably estimates that it will have gross receipts, less returns
and allowances, reportable to this state for the income year of one
million dollars ($1,000,000) or less.  "Qualified new corporation"
does not include any corporation that began business operations as a
sole proprietorship, a partnership, or any other form of business
entity prior to its incorporation.  This subdivision shall not apply
to any corporation that reorganizes solely for the purpose of
reducing its minimum franchise tax.
   (4) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as defined in Section
17948, charitable organizations, as described in Section 23703,
regulated investment companies, as defined in Section 851 of the
Internal Revenue Code, real estate investment trusts, as defined in
Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, financial asset securitization investment trusts, as
defined in Section 860L of the Internal Revenue Code, qualified
Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the
Internal Revenue Code, or to the formation of any subsidiary
corporation, to the extent applicable.
   (5) For any income year beginning on or after January 1, 1999, and
before January 1, 2000, if a corporation has qualified to pay five
hundred dollars ($500) for the second taxable year under this
subdivision, but in its second taxable year, the corporation's gross
receipts, as determined under paragraphs (1) and (2), exceed one
million dollars ($1,000,000), an additional tax in the amount equal
to three hundred dollars ($300) for the second taxable year shall be
due and payable by the corporation on the due date of its return,
without regard to extension, for that year.
   (f) (1) Notwithstanding subdivision (a), every corporation that
incorporates or qualifies to do business in this state on or after
January 1, 2000, shall not be subject to the minimum franchise tax
for its first and second taxable years.
   (2) This subdivision shall not apply to limited partnerships, as
defined in Section 17935, limited liability companies, as defined in
Section 17941, limited liability partnerships, as defined in Section
17948, charitable organizations, as described in Section 23703,
regulated investment companies, as defined in Section 851 of the
Internal Revenue Code, real estate investment trusts, as defined in
Section 856 of the Internal Revenue Code, real estate mortgage
investment conduits, as defined in Section 860D of the Internal
Revenue Code, financial asset securitization investment trusts, as
defined in Section 860L of the Internal Revenue Code, and qualified
Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the
Internal Revenue Code, to the extent applicable.
   (3) This subdivision shall not apply to any corporation that
reorganizes solely for the purpose of avoiding payment of its minimum
franchise tax.
   (g) Notwithstanding subdivision (a), a domestic corporation, as
defined in Section 167 of the Corporations Code, that files a
certificate of dissolution in the office of the Secretary of State
pursuant to subdivision (c) of Section 1905 of the Corporations Code
and that does not thereafter do business shall not be subject to the
minimum franchise tax for income years beginning on or after the date
of that filing.
   (h) The minimum franchise tax imposed by paragraph (1) of
subdivision (d) shall not be increased by the Legislature by more
than 10 percent during any calendar year.
  SEC. 79.  Section 23221 of the Revenue and Taxation Code, as
amended by Section 2 of Chapter 64 of the Statutes of 1999, is
amended to read:
   23221.  (a) Except as provided under subdivisions (b) and (f), a
corporation which incorporates under the laws of this state or
qualifies to transact intrastate business in this state shall
thereupon prepay the minimum tax provided in Section 23153, except
that any credit union shall thereupon prepay a tax of twenty-five
dollars ($25).  The prepayment shall be made to the Secretary of
State with the filing of the articles of incorporation or the
statement and designation by a foreign corporation.  The Secretary of
State shall transmit the amount of the prepayment to the Franchise
Tax Board.  The Franchise Tax Board shall certify to the Secretary of
State on an individual or class basis those domestic or foreign
corporations which are exempt from prepayment or for which prepayment
to the Secretary of State is waived.
   (b) (1) For income years commencing on or after January 1, 1997,
and before January 1, 1999, the amount payable by a qualified new
corporation under subdivision (a) shall be six hundred dollars
($600).
   (2) For income years commencing on or after January 1, 1999, and
before January 1, 2000, the amount payable by a qualified new
corporation that is incorporated on or after January 1, 1999, under
subdivision (a) shall be three hundred dollars ($300).
   (c) For purposes of this section, "qualified new corporation"
means a corporation that begins operation at or after the time of its
incorporation and that reasonably estimates that, for the income
year, it will have both gross receipts, less returns and allowances
reportable to this state, of one million dollars ($1,000,000) or less
and a tax liability under Section 23151 that does not exceed eight
hundred dollars ($800).  "Qualified new corporation" does not include
any corporation that began business operations as a sole
proprietorship, a partnership, or any other form of business entity
prior to its incorporation.
   (1) The determination of gross receipts of a corporation, for
purposes of this section, shall be made by including the gross
receipts of each member of the commonly controlled group, as defined
in Section 25105, of which the bank or corporation is a member.
   (2) "Gross receipts, less returns and allowances reportable to
this state," means the sum of the gross receipts from the production
of business income, as defined in subdivision (a) of Section 25120,
and the gross receipts from the production of nonbusiness income, as
defined in subdivision (d) of Section 25120.
   (d) Subdivision (b) shall not apply to any corporation if 50
percent or more of its stock is, or will be upon the initial issuance
of stock, owned by another corporation.
   (e) (1) For income years commencing on or after January 1, 1997,
and before January 1, 1999, if a corporation paid six hundred dollars
($600) under paragraph (1) of subdivision (b), but for its first
income year the corporation's tax liability under Section 23151
exceeds eight hundred dollars ($800), or the corporation's gross
receipts, as determined under paragraph (2) of subdivision (c),
exceed one million dollars ($1,000,000), an additional tax in an
amount equal to two hundred dollars ($200) shall be due and payable
by the corporation on the due date of its return, without regard to
extension, for its first income year.
   (2) For income years commencing on or after January 1, 1999, and
before January 1, 2000, if a corporation paid three hundred dollars
($300) under paragraph (2) of subdivision (b), but for its first
income year the corporation's tax liability under Section 23151
exceeds eight hundred dollars ($800), or the corporation's gross
receipts, as determined under paragraphs (1) and (2) of subdivision
(c), exceed one million dollars ($1,000,000), an additional tax in an
amount equal to five hundred dollars ($500) shall be due and payable
by the corporation on the due date of its return, without regard to
extension, for its first income year.
   (f) Every corporation that incorporates under the laws of this
state or qualifies to transact intrastate business in this state on
or after January 1, 2000, and before January 1, 2001, shall not be
subject to the amount payable under subdivision (a), except that any
credit union shall thereupon prepay a tax of twenty-five dollars
($25).
   (g) This section shall remain in effect only until January 1,
2001, and as of that date is repealed.
  SEC. 80.  Section 23335 of the Revenue and Taxation Code is amended
to read:
   23335.  (a) Any return filed pursuant to Section 18601 that the
taxpayer designates in the appropriate place on the form provided by
the Franchise Tax Board as the taxpayer's final return as the result
of a dissolution or withdrawal shall be treated as a request for a
certificate issued by the Franchise Tax Board pursuant to Section
23334 unless the taxpayer has otherwise filed a request with the
Franchise Tax Board for that certificate.
   (b) If a taxpayer has filed a return that is a request for a tax
clearance certificate as described in subdivision (a), the Franchise
Tax Board shall provide the taxpayer with information, including
forms and instructions, regarding all documents that are required by
this article to be filed with the Franchise Tax Board and the
Secretary of State.
  SEC. 81.  Section 23612.2 of the Revenue and Taxation Code is
amended to read:
   23612.2.  (a) There shall be allowed as a credit against the "tax"
(as defined by Section 23036) for the income year an amount equal to
the sales or use tax paid or incurred during the income year by the
taxpayer in connection with the taxpayer's purchase of qualified
property.
   (b) For purposes of this section:
   (1) "Taxpayer" means a corporation engaged in a trade or business
within an enterprise zone.
   (2) "Qualified property" means:
   (A) Any of the following:
   (i) Machinery and machinery parts used for fabricating,
processing, assembling, and manufacturing.
   (ii) Machinery and machinery parts used for the production of
renewable energy resources.
   (iii) Machinery and machinery parts used for either of the
following:
   (I) Air pollution control mechanisms.
   (II) Water pollution control mechanisms.
   (iv) Data processing and communications equipment, including, but
not limited to, computers, computer-automated drafting systems, copy
machines, telephone systems, and faxes.
   (v) Motion picture manufacturing equipment central to production
and postproduction, including, but not limited to, cameras, audio
recorders, and digital image and sound processing equipment.
   (B) The total cost of qualified property purchased and placed in
service in any income year that may be taken into account by any
taxpayer for purposes of claiming this credit shall not exceed twenty
million dollars ($20,000,000).
   (C) The qualified property is used by the taxpayer exclusively in
an enterprise zone.
   (D) The qualified property is purchased and placed in service
before the date the enterprise zone designation expires, is no longer
binding, or becomes inoperative.
   (3) "Enterprise zone" means the area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
   (c) If the taxpayer has purchased property upon which a use tax
has been paid or incurred, the credit provided by this section shall
be allowed only if qualified property of a comparable quality and
price is not timely available for purchase in this state.
   (d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the income year, that portion of the
credit which exceeds the "tax" may be carried over and added to the
credit, if any, in the following year, and succeeding years if
necessary, until the credit is exhausted.  The credit shall be
applied first to the earliest income years possible.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the qualified property as
otherwise required by Section 164(a) of the Internal Revenue Code
with respect to sales or use tax paid or incurred in connection with
the taxpayer's purchase of qualified property.
   (f) (1) The amount of credit otherwise allowed under this section
and Section 23622.7, including any credit carryover from prior years,
that may reduce the "tax" for the income year shall not exceed the
amount of tax which would be imposed on the taxpayer's business
income attributable to the enterprise zone determined as if that
attributable income represented all of the income of the taxpayer
subject to tax under this part.
   (2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone.  For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101).  That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
   (3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.  For purposes of
this paragraph:
   (A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
   (B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
   (4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding income
years, as if it were an amount exceeding the "tax" for the income
year, as provided in subdivision (d).
   (g) The amendments made to this section by the act adding this
subdivision shall apply to income years beginning on or after January
1, 1998.
  SEC. 82.  Section 23622.7 of the Revenue and Taxation Code is
amended to read:
   23622.7.  (a) There shall be allowed a credit against the "tax"
(as defined by Section 23036) to a taxpayer who employs a qualified
employee in an enterprise zone during the income year.  The credit
shall be equal to the sum of each of the following:
   (1) Fifty percent of qualified wages in the first year of
employment.
   (2) Forty percent of qualified wages in the second year of
employment.
   (3) Thirty percent of qualified wages in the third year of
employment.
   (4) Twenty percent of qualified wages in the fourth year of
employment.
   (5) Ten percent of qualified wages in the fifth year of
employment.
   (b) For purposes of this section:
   (1) "Qualified wages" means:
   (A) (i) Except as provided in clause (ii), that portion of wages
paid or incurred by the taxpayer during the income year to qualified
employees that does not exceed 150 percent of the minimum wage.
   (ii) For up to 1,350 qualified employees who are employed by the
taxpayer in the Long Beach Enterprise Zone in aircraft manufacturing
activities described in Codes 3721 to 3728, inclusive, and Code 3812
of the Standard Industrial Classification (SIC) Manual published by
the United States Office of Management and Budget, 1987 edition,
"qualified wages" means that portion of hourly wages that does not
exceed 202 percent of the minimum wage.
   (B) Wages received during the 60-month period beginning with the
first day the employee commences employment with the taxpayer.
Reemployment in connection with any increase, including a regularly
occurring seasonal increase, in the trade or business operations of
the taxpayer does not constitute commencement of employment for
purposes of this section.
   (C) Qualified wages do not include any wages paid or incurred by
the taxpayer on or after the zone expiration date. However, wages
paid or incurred with respect to qualified employees who are employed
by the taxpayer within the enterprise zone within the 60-month
period prior to the zone expiration date shall continue to qualify
for the credit under                                           this
section after the zone expiration date, in accordance with all
provisions of this section applied as if the enterprise zone
designation were still in existence and binding.
   (2) "Minimum wage" means the wage established by the Industrial
Welfare Commission as provided for in Chapter 1 (commencing with
Section 1171) of Part 4 of Division 2 of the Labor Code.
   (3) "Zone expiration date" means the date the enterprise zone
designation expires, is no longer binding, or becomes inoperative.
   (4) (A) "Qualified employee" means an individual who meets all of
the following requirements:
   (i) At least 90 percent of whose services for the taxpayer during
the income year are directly related to the conduct of the taxpayer's
trade or business located in an enterprise zone.
   (ii) Performs at least 50 percent of his or her services for the
taxpayer during the income year in an enterprise zone.
   (iii) Is hired by the taxpayer after the date of original
designation of the area in which services were performed as an
enterprise zone.
   (iv) Is any of the following:
   (I) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a person eligible for services
under the federal Job Training Partnership Act (29 U.S.C. Sec. 1501
et seq.), or its successor, who is receiving, or is eligible to
receive, subsidized employment, training, or services funded by the
federal Job Training Partnership Act, or its successor.
   (II) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible to be a
voluntary or mandatory registrant under the Greater Avenues for
Independence Act of 1985 (GAIN) provided for pursuant to Article 3.2
(commencing with Section 11320) of Chapter 2 of Part 3 of Division 9
of the Welfare and Institutions Code, or its successor.
   (III) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an economically disadvantaged
individual 14 years of age or older.
   (IV) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a dislocated worker who meets
any of the following:
   (aa) Has been terminated or laid off or who has received a notice
of termination or layoff from employment, is eligible for or has
exhausted entitlement to unemployment insurance benefits, and is
unlikely to return to his or her previous industry or occupation.
   (bb) Has been terminated or has received a notice of termination
of employment as a result of any permanent closure or any substantial
layoff at a plant, facility, or enterprise, including an individual
who has not received written notification but whose employer has made
a public announcement of the closure or layoff.
   (cc) Is long-term unemployed and has limited opportunities for
employment or reemployment in the same or a similar occupation in the
area in which the individual resides, including an individual 55
years of age or older who may have substantial barriers to employment
by reason of age.
   (dd) Was self-employed (including farmers and ranchers) and is
unemployed as a result of general economic conditions in the
community in which he or she resides or because of natural disasters.

   (ee) Was a civilian employee of the Department of Defense employed
at a military installation being closed or realigned under the
Defense Base Closure and Realignment Act of 1990.
   (ff) Was an active member of the armed forces or National Guard as
of September 30, 1990, and was either involuntarily separated or
separated pursuant to a special benefits program.
   (gg) Is a seasonal or migrant worker who experiences chronic
seasonal unemployment and underemployment in the agriculture
industry, aggravated by continual advancements in technology and
mechanization.
   (hh) Has been terminated or laid off, or has received a notice of
termination or layoff, as a consequence of compliance with the Clean
Air Act.
   (V) Immediately preceding the qualified employee's commencement of
employment with the taxpayer, was a disabled individual who is
eligible for or enrolled in, or has completed a state rehabilitation
plan or is a service-connected disabled veteran, veteran of the
Vietnam era, or veteran who is recently separated from military
service.
   (VI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was an ex-offender.  An individual
shall be treated as convicted if he or she was placed on probation by
a state court without a finding of guilt.
   (VII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a person eligible for or a
recipient of any of the following:
   (aa) Federal Supplemental Security Income benefits.
   (bb) Aid to Families with Dependent Children.
   (cc) Food stamps.
   (dd) State and local general assistance.
   (VIII) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a federally
recognized Indian tribe, band, or other group of Native American
descent.
   (IX) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a resident of a targeted
employment area (as defined in Section 7072 of the Government Code).

   (X) An employee who qualified the taxpayer for the enterprise zone
hiring credit under former Section 23622 or the program area hiring
credit under former Section 23623.
   (XI) Immediately preceding the qualified employee's commencement
of employment with the taxpayer, was a member of a targeted group, as
defined in Section 51(d) of the Internal Revenue Code, or its
successor.
   (B) Priority for employment shall be provided to an individual who
is enrolled in a qualified program under the federal Job Training
Partnership Act or the Greater Avenues for Independence Act of 1985
or who is eligible as a member of a targeted group under the Work
Opportunity Tax Credit (Section 51 of the Internal Revenue Code), or
its successor.
   (5) "Taxpayer" means a corporation engaged in a trade or business
within an enterprise zone designated pursuant to Chapter 12.8
(commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.
   (6) "Seasonal employment" means employment by a taxpayer that has
regular and predictable substantial reductions in trade or business
operations.
   (c) The taxpayer shall do both of the following:
   (1) Obtain from either the Employment Development Department, as
permitted by federal law, or the local county or city Job Training
Partnership  Act administrative entity or the local county GAIN
office or social services agency, as appropriate, a certification
that provides that a qualified employee meets the eligibility
requirements specified in clause (iv) of subparagraph (A) of
paragraph (4) of subdivision (b).  The Employment Development
Department may provide preliminary screening and referral to a
certifying agency.  The Employment Development Department shall
develop a form for this purpose.
   (2) Retain a copy of the certification and provide it upon request
to the Franchise Tax Board.
   (d) (1) For purposes of this section:
   (A) All employees of all corporations which are members of the
same controlled group of corporations shall be treated as employed by
a single taxpayer.
   (B) The credit, if any, allowable by this section to each member
shall be determined by reference to its proportionate share of the
expense of the qualified wages giving rise to the credit, and shall
be allocated in that manner.
   (C) For purposes of this subdivision, "controlled group of
corporations" means "controlled group of corporations" as defined in
Section 1563(a) of the Internal Revenue Code, except that:
   (i) "More than 50 percent" shall be substituted for "at least 80
percent" each place it appears in Section 1563(a)(1) of the Internal
Revenue Code.
   (ii) The determination shall be made without regard to subsections
(a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
   (2) If an employer acquires the major portion of a trade or
business of another employer (hereinafter in this paragraph referred
to as the "predecessor") or the major portion of a separate unit of a
trade or business of a predecessor, then, for purposes of applying
this section (other than subdivision (e)) for any calendar year
ending after that acquisition, the employment relationship between a
qualified employee and an employer shall not be treated as terminated
if the employee continues to be employed in that trade or business.

   (e) (1) (A) If the employment, other than seasonal employment, of
any qualified employee with respect to whom qualified wages are taken
into account under subdivision (a) is terminated by the taxpayer at
any time during the first 270 days of that employment, whether or not
consecutive, or before the close of the 270th calendar day after the
day in which that employee completes 90 days of employment with the
taxpayer, the tax imposed by this part for the income year in which
that employment is terminated shall be increased by an amount equal
to the credit allowed under subdivision (a) for that income year and
all prior income years attributable to qualified wages paid or
incurred with respect to that employee.
   (B) If the seasonal employment of any qualified employee, with
respect to whom qualified wages are taken into account under
subdivision (a) is not continued by the taxpayer for a period of 270
days of employment during the 60-month period beginning with the day
the qualified employee commences seasonal employment with the
taxpayer, the tax imposed by this part, for the income year that
includes the 60th month following the month in which the qualified
employee commences seasonal employment with the taxpayer, shall be
increased by an amount equal to the credit allowed under subdivision
(a) for that income year and all prior income years attributable to
qualified wages paid or incurred with respect to that qualified
employee.
   (2) (A) Subparagraph (A) of paragraph (1) shall not apply to any
of the following:
   (i) A termination of employment of a qualified employee who
voluntarily leaves the employment of the taxpayer.
   (ii) A termination of employment of a qualified employee who,
before the close of the period referred to in subparagraph (A) of
paragraph (1), becomes disabled and unable to perform the services of
that employment, unless that disability is removed before the close
of that period and the taxpayer fails to offer reemployment to that
employee.
   (iii) A termination of employment of a qualified employee, if it
is determined that the termination was due to the misconduct (as
defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations) of that employee.
   (iv) A termination of employment of a qualified employee due to a
substantial reduction in the trade or business operations of the
taxpayer.
   (v) A termination of employment of a qualified employee, if that
employee is replaced by other qualified employees so as to create a
net increase in both the number of employees and the hours of
employment.
   (B) Subparagraph (B) of paragraph (1) shall not apply to any of
the following:
   (i) A failure to continue the seasonal employment of a qualified
employee who voluntarily fails to return to the seasonal employment
of the taxpayer.
   (ii) A failure to continue the seasonal employment of a qualified
employee who, before the close of the period referred to in
subparagraph (B) of paragraph (1), becomes disabled and unable to
perform the services of that seasonal employment, unless that
disability is removed before the close of that period and the
taxpayer fails to offer seasonal employment to that qualified
employee.
   (iii) A failure to continue the seasonal employment of a qualified
employee, if it is determined that the failure to continue the
seasonal employment was due to the misconduct (as defined in Sections
1256-30 to 1256-43, inclusive, of Title 22 of the California Code of
Regulations) of that qualified employee.
   (iv) A failure to continue seasonal employment of a qualified
employee due to a substantial reduction in the regular seasonal trade
or business operations of the taxpayer.
   (v) A failure to continue the seasonal employment of a qualified
employee, if that qualified employee is replaced by other qualified
employees so as to create a net increase in both the number of
seasonal employees and the hours of seasonal employment.
   (C) For purposes of paragraph (1), the employment relationship
between the taxpayer and a qualified employee shall not be treated as
terminated by either of the following:
   (i) By a transaction to which Section 381(a) of the Internal
Revenue Code applies, if the qualified employee continues to be
employed by the acquiring corporation.
   (ii) By reason of a mere change in the form of conducting the
trade or business of the taxpayer, if the qualified employee
continues to be employed in that trade or business and the taxpayer
retains a substantial interest in that trade or business.
   (3) Any increase in tax under paragraph (1) shall not be treated
as tax imposed by this part for purposes of determining the amount of
any credit allowable under this part.
   (f) Rules similar to the rules provided in Section 46(e) and (h)
of the Internal Revenue Code shall apply to both of the following:
   (1) An organization to which Section 593 of the Internal Revenue
Code applies.
   (2) A regulated investment company or a real estate investment
trust subject to taxation under this part.
   (g) For purposes of this section, "enterprise zone" means an area
designated as an enterprise zone pursuant to Chapter 12.8 (commencing
with Section 7070) of Division 7 of Title 1 of the Government Code.

   (h) The credit allowable under this section shall be reduced by
the credit allowed under Sections 23623.5, 23625, and 23646 claimed
for the same employee.  The credit shall also be reduced by the
federal credit allowed under Section 51 of the Internal Revenue Code.

   In addition, any deduction otherwise allowed under this part for
the wages or salaries paid or incurred by the taxpayer upon which the
credit is based shall be reduced by the amount of the credit, prior
to any reduction required by subdivision (i) or (j).
   (i) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the income year, that portion of the
credit that exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding income years, until the credit is
exhausted.  The credit shall be applied first to the earliest income
years possible.
   (j) (1) The amount of the credit otherwise allowed under this
section and Section 23612.2, including any credit carryover from
prior years, that may reduce the "tax" for the income year shall not
exceed the amount of tax which would be imposed on the taxpayer's
business income attributable to the enterprise zone determined as if
that attributable income represented all of the income of the
taxpayer subject to tax under this part.
   (2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone.  For that purpose, the taxpayer's business
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this section in accordance with
paragraph (3).
   (3) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.  For purposes of
this paragraph:
   (A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
income year, and the denominator of which is the average value of all
the taxpayer's real and tangible personal property owned or rented
and used in this state during the income year.
   (B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the income year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
income year.
   (4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding income
years, as if it were an amount exceeding the "tax" for the income
year, as provided in subdivision (i).
   (k) The changes made to this section by the act adding this
subdivision shall apply to income years on or after January 1, 1997.

  SEC. 83.  Section 23645 of the Revenue and Taxation Code is amended
to read:
   23645.  (a) For each income year beginning on or after January 1,
1995, there shall be allowed as a credit against the "tax" (as
defined by Section 23036) for the income year an amount equal to the
sales or use tax paid or incurred by the taxpayer in connection with
the purchase of qualified property to the extent that the qualified
property does not exceed a value of twenty million dollars
($20,000,000).
   (b) For purposes of this section:
   (1) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (2) "Taxpayer" means a corporation that conducts a trade or
business within a LAMBRA and, for the first two income years, has a
net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA.
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA.  For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero.  If the taxpayer has a net
increase in jobs in the state, the credit shall be allowed only if
one or more full-time employees is employed within the LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees that are salaried employees divided by 12.
   (C) In the case of a taxpayer who first commences doing business
in the LAMBRA during the income year, for purposes of clauses (i) and
(ii), respectively, of subparagraph (B) the divisors "2,000" and "12"
shall be multiplied by a fraction, the numerator of which is the
number of months of the income year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (3) "Qualified property" means property that is each of the
following:
   (A) Purchased by the taxpayer for exclusive use in a trade or
business conducted within a LAMBRA.
   (B) Purchased before the date the LAMBRA designation expires, is
no longer binding, or becomes inoperative.
   (C) Any of the following:
   (i) High technology equipment, including, but not limited to,
computers and electronic processing equipment.
   (ii) Aircraft maintenance equipment, including, but not limited
to, engine stands, hydraulic mules, power carts, test equipment,
handtools, aircraft start carts, and tugs.
   (iii) Aircraft components, including, but not limited to, engines,
fuel control units, hydraulic pumps, avionics, starts, wheels, and
tires.
   (iv) Section 1245 property, as defined in Section 1245(a)(3) of
the Internal Revenue Code.
   (c) The credit provided under subdivision (a) shall only be
allowed for qualified property manufactured in California unless
qualified property of a comparable quality and price is not available
for timely purchase and delivery from a California manufacturer.
   (d) In the case where the credit otherwise allowed under this
section exceeds the "tax" for the income year, that portion of the
credit which exceeds the "tax" may be carried over and added to the
credit, if any, in succeeding years, until the credit is exhausted.
The credit shall be applied first to the earliest income years
possible.
   (e) Any taxpayer who elects to be subject to this section shall
not be entitled to increase the basis of the property as otherwise
required by Section 164(a) of the Internal Revenue Code with respect
to sales or use tax paid or incurred in connection with the purchase
of qualified property.
   (f) (1) The amount of the credit otherwise allowed under this
section and Section 23646, including any credit carryovers from prior
years, that may reduce the "tax" for the income year shall not
exceed the amount of tax that would be imposed on the taxpayer's
business income attributed to a LAMBRA determined as if that
attributable income represented all the income of the taxpayer
subject to tax under this part.
   (2) Attributable income shall be that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income that is
attributable to sources in this state shall first be determined in
accordance with Chapter 17 (commencing with Section 25101).  That
business income shall be further apportioned to the LAMBRA in
accordance with Article 2 (commencing with Section 25120) of Chapter
17, modified for purposes of this section in accordance with
paragraph (3).
   (3) Income shall be apportioned to a LAMBRA by multiplying the
total California business income of the taxpayer by a fraction, the
numerator of which is the property factor, plus the payroll factor,
and the denominator of which is two.  For purposes of this paragraph:

   (A) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the income
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the income year.
   (B) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the income
year for compensation, and the denominator of which is the total
compensation paid by the taxpayer in this state during the income
year.
   (4) The portion of any credit remaining, if any, after application
of this subdivision, shall be carried over to succeeding income
years, as if it were an amount exceeding the "tax" for the income
year, as provided in subdivision (d).
   (g) (1) If the qualified property is disposed of or no longer used
by the taxpayer in the LAMBRA, at any time before the close of the
second income year after the property is placed in service, the
amount of the credit previously claimed, with respect to that
property, shall be added to the taxpayer's tax liability in the
income year of that disposition or nonuse.
   (2) At the close of the second income year, if the taxpayer has
not increased the number of its employees as determined by paragraph
(2) of subdivision (b), then the amount of the credit previously
claimed shall be added to the taxpayer's tax for the taxpayer's
second income year.
   (h) If the taxpayer is allowed a credit for qualified property
pursuant to this section, only one credit shall be allowed to the
taxpayer under this part with respect to that qualified property.
   (i) The amendments made to this section by the act adding this
subdivision shall apply to income years beginning on or after January
1, 1998.
  SEC. 84.  Section 23649 of the Revenue and Taxation Code is amended
to read:
   23649.  (a) (1) A qualified taxpayer shall be allowed a credit
against the "tax," as defined in Section 23036, equal to 6 percent of
the qualified cost of qualified property that is placed in service
in this state.
   (2) In the case of any qualified costs paid or incurred on or
after January 1, 1994, and prior to the first income year of the
qualified taxpayer beginning on or after January 1, 1995, the credit
provided under paragraph (1) shall be claimed by the qualified
taxpayer on the qualified taxpayer's return for the first income year
beginning on or after January 1, 1995.  No credit shall be claimed
under this section on a return filed for any income year commencing
prior to the qualified taxpayer's first income year beginning on or
after January 1, 1995.
   (b) (1) For purposes of this section, "qualified cost" means any
cost that satisfies each of the following conditions:
   (A) Except as otherwise provided in this subparagraph, is a cost
paid or incurred by the qualified taxpayer for the construction,
reconstruction, or acquisition of qualified property on or after
January 1, 1994, and prior to the date this section ceases to be
operative under paragraph (2) of subdivision (i).  In the case of any
qualified property constructed, reconstructed, or acquired by the
qualified taxpayer (or any person related to the qualified taxpayer
within the meaning of Section 267 or 707 of the Internal Revenue
Code) pursuant to a binding contract in existence on or prior to
January 1, 1994, costs paid pursuant to that contract shall be
subject to allocation as follows:  contract costs shall be allocated
to qualified property based on a ratio of costs actually paid prior
to January 1, 1994, and total contract costs actually paid.  "Cost
paid" shall include, without limitation, contractual deposits and
option payments.  To the extent of cost allocated, whether or not
currently deductible or depreciable for tax purposes, to a period
prior to January 1, 1994, the cost shall be deemed allocated to
property acquired before January 1, 1994, and is thus not a
"qualified cost."
   (B) Except as provided in paragraph (3) of subdivision (d) and
subparagraph (B) of paragraph (4) of subdivision (d), is an amount
upon which                                            the qualified
taxpayer has paid, directly or indirectly as a separately stated
contract amount or as determined from the records of the qualified
taxpayer, sales or use tax under Part 1 (commencing with Section
6001).
   (C) Is an amount properly chargeable to the capital account of the
qualified taxpayer.
   (2) (A) For purposes of this subdivision, any contract entered
into on or after January 1, 1994, that is a successor or replacement
contract to a contract that was binding prior to January 1, 1994,
shall be treated as a binding contract in existence prior to January
1, 1994.
   (B) If a successor or replacement contract is entered into on or
after January 1, 1994, and the subject of the successor or
replacement contract relates both to amounts for the construction,
reconstruction, or acquisition of qualified property described in the
original binding contract and to costs for the construction,
reconstruction, or acquisition of qualified property not described in
the original binding contract, then the portion of those amounts
described in the successor or replacement contract that were not
described in the original binding contract shall not be treated as
costs paid or incurred pursuant to a binding contract in existence on
or prior to January 1, 1994, under subparagraph (A) of paragraph
(1).
   (3) (A) For purposes of this section, an option contract in
existence prior to January 1, 1994, under which a qualified taxpayer
(or any other person related to the qualified taxpayer within the
meaning of Section 267 or 707 of the Internal Revenue Code) had an
option to acquire qualified property, shall be treated as a binding
contract under the rules in paragraph (2).  For purposes of this
subparagraph, an option contract shall not include an option under
which the optionholder will forfeit an amount less than 10 percent of
the fixed option price in the event the option is not exercised.
   (B) For purposes of this section, a contract shall be treated as
binding even if the contract is subject to a condition.
   (4) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first income year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears.
   (c) (1) For purposes of this section, "qualified taxpayer" means
any taxpayer engaged in those lines of business described in Codes
2011 to 3999, inclusive, or Codes 7371 to 7373, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
   (2) In the case of any passthrough entity, the determination of
whether a taxpayer is a qualified taxpayer shall be made at the
entity level and any credit under this section or Section 17053.49
shall be allowed to the passthrough entity and passed through to the
partners or shareholders in accordance with applicable provisions of
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001).  For purposes of this paragraph, the term
"passthrough entity" means any partnership or S corporation.
   (3) The Franchise Tax Board may prescribe regulations to carry out
the purposes of this section, including any regulations necessary to
prevent the avoidance of the effect of this section through
splitups, shell corporations, partnerships, tiered ownership
structures, sale-leaseback transactions, or otherwise.
   (d) For purposes of this section, "qualified property" means
property that is described as either of the following:
   (1) Tangible personal property that is defined in Section 1245(a)
of the Internal Revenue Code for use by a qualified taxpayer in those
lines of business described in Codes 2011 to 3999, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, that is
primarily used for any of the following:
   (A) For the manufacturing, processing, refining, fabricating, or
recycling of property, beginning at the point at which any raw
materials are received by the qualified taxpayer and introduced into
the process and ending at the point at which the manufacturing,
processing, refining, fabricating, or recycling has altered tangible
personal property to its completed form, including packaging, if
required.
   (B) In research and development.
   (C) To maintain, repair, measure, or test any property described
in this paragraph.
   (D) For pollution control that meets or exceeds standards
established by the state or by any local or regional governmental
agency within the state.
   (E) For recycling.
   (2) Computers and computer peripheral equipment, as defined in
Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible
personal property as defined in Section 1245(a) of the Internal
Revenue Code for use by a qualified taxpayer in those lines of
business described in SIC Codes 7371 to 7373, inclusive, of the SIC
Manual, 1987 edition, that is primarily used to develop or
manufacture prepackaged software or custom software prepared to the
special order of the purchaser who uses the program to produce and
sell or license copies of the program as prepackaged software.
   (3) The value of any capitalized labor costs that are directly
allocable to the construction or modification of property described
in paragraph (1) or (2).
   (4) In the case of any qualified taxpayer engaged in manufacturing
activities described in SIC Code 357 or 367, those activities
related to biotechnology described in SIC Code 8731, those activities
related to biopharmaceutical establishments only that are described
in SIC Codes 2833 to 2836, inclusive, those activities related to
space vehicles and parts described in SIC Codes 3761 to 3769,
inclusive, those activities related to space satellites and
communications satellites and equipment described in SIC Codes 3663
and 3812 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1996), or those activities
related to semiconductor equipment manufacturing described in SIC
Code 3559 (but only with respect to "qualified property" that is
placed in service on or after January 1, 1997), "qualified property"
also includes the following:
   (A) Special purpose buildings and foundations that are constructed
or modified for use by the qualified taxpayer primarily in a
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (B) The value of any capitalized labor costs that are directly
allocable to the construction or modification of special purpose
buildings and foundations that are used primarily in the
manufacturing, processing, refining, or fabricating process, or as a
research or storage facility primarily used in connection with a
manufacturing process.
   (C) (i) For purposes of this paragraph, "special purpose building
and foundation" means only a building and the foundation immediately
underlying the building that is specifically designed and constructed
or reconstructed for the installation, operation, and use of
specific machinery and equipment with a special purpose, which
machinery and equipment, after installation, will become affixed to
or a fixture of the real property, and the construction or
reconstruction of which is specifically designed and used exclusively
for the specified purposes as set forth in subparagraph (A) ("
qualified purpose").
   (ii) A building is specifically designed and constructed or
modified for a qualified purpose if it is not economical to design
and construct the building for the intended purpose and then use the
structure for a different purpose.
   (iii) For purposes of clause (i) and clause (vi), a building is
used exclusively for a qualified purpose only if its use does not
include a use for which it was not specifically designed and
constructed or modified.  Incidental use of a building for
nonqualified purposes does not preclude the building from being a
special purpose building.  "Incidental use" means a use which is both
related and subordinate to the qualified purpose.  It will be
conclusively presumed that a use is not subordinate if more than
one-third of the total usable volume of the building is devoted to a
use which is not a qualified purpose.
   (iv) In the event an entire building does not qualify as a special
purpose building, a taxpayer may establish that a portion of a
building, and the foundation immediately underlying the portion,
qualifies for treatment as a special purpose building and foundation
if the portion satisfies all of the definitional provisions in this
subparagraph.
   (v) To the extent that a building is not a special purpose
building as defined above, but a portion of the building qualifies
for treatment as a special purpose building, then all equipment which
exclusively supports the qualified purpose occurring within that
portion and which would qualify as Internal Revenue Code Section 1245
property if it were not a fixture or affixed to the building shall
be treated as a cost of the portion of the building which qualifies
for treatment as a special purpose building.
   (vi) Buildings and foundations which do not meet the definition of
a special purpose building and foundation set forth above include,
but are not limited to:  buildings designed and constructed or
reconstructed principally to function as a general purpose
manufacturing, industrial, or commercial building; research
facilities that are used primarily prior to or after, or prior to and
after, the manufacturing process; or storage facilities that are
used primarily prior to or after, or prior to and after, completion
of the manufacturing process.  A research facility shall not be
considered to be used primarily prior to or after, or prior to and
after, the manufacturing process if its purpose and use relate
exclusively to the development and regulatory approval of the
manufacturing process for specific biopharmaceutical products.  A
research facility which is used primarily in connection with the
discovery of an organism from which a biopharmaceutical product or
process is developed does not meet the requirements of the preceding
sentence.
   (5) Subject to the provisions in subparagraph (B) of paragraph (1)
of subdivision (b), qualified property also includes computer
software that is primarily used for those purposes set forth in
paragraph (1) or (2) of this subdivision.
   (6) Qualified property does not include any of the following:
   (A) Furniture.
   (B) Facilities used for warehousing purposes after completion of
the manufacturing process.
   (C) Inventory.
   (D) Equipment used in the extraction process.
   (E) Equipment used to store finished products that have completed
the manufacturing process.
   (F) Any tangible personal property that is used in administration,
general management, or marketing.
   (G) Any vehicle for which a credit is claimed pursuant to Section
17052.11 or 23603.
   (e) For purposes of this section:
   (1) "Biopharmaceutical activities" means those activities that use
organisms or materials derived from organisms, and their cellular,
subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics.  Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities which make use of chemical compounds to produce commercial
products.
   (2) "Fabricating" means to make, build, create, produce, or
assemble components or property to work in a new or different manner.

   (3) "Manufacturing" means the activity of converting or
conditioning property by changing the form, composition, quality, or
character of the property for ultimate sale at retail or use in the
manufacturing of a product to be ultimately sold at retail.
Manufacturing includes any improvements to tangible personal property
that result in a greater service life or greater functionality than
that of the original property.
   (4) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (5) "Primarily" means tangible personal property used 50 percent
or more of the time in an activity described in subdivision (d).
   (6) "Process" means the period beginning at the point at which any
raw materials are received by the qualified taxpayer and introduced
into the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified person and ending at the point at
which the manufacturing, processing, refining, fabricating, or
recycling activity of the qualified taxpayer has altered tangible
personal property to its completed form, including packaging, if
required.  Raw materials shall be considered to have been introduced
into the process when the raw materials are stored on the same
premises where the qualified taxpayer's manufacturing, processing,
refining, fabricating, or recycling activity is conducted.  Raw
materials that are stored on premises other than where the qualified
taxpayer's manufacturing, processing, refining, fabricating, or
recycling activity is conducted, shall not be considered to have been
introduced into the manufacturing, processing, refining,
fabricating, or recycling process.
   (7) "Processing" means the physical application of the materials
and labor necessary to modify or change the characteristics of
property.
   (8) "Refining" means the process of converting a natural resource
to an intermediate or finished product.
   (9) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (10) "Small business" means a qualified taxpayer that meets any of
the following requirements during the income year for which the
credit is allowed:
   (A) Has gross receipts of less than fifty million dollars
($50,000,000).
   (B) Has net assets of less than fifty million dollars
($50,000,000).
   (C) Has a total credit of less than one million dollars
($1,000,000).
   (D) For income years beginning on or after January 1, 1997, is
engaged in biopharmaceutical activities or other biotechnology
activities that are described in Codes 2833 to 2836, inclusive, of
the Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, and has
not received regulatory approval for any product from the United
States Food and Drug Administration.
   (f) The credit allowed under subdivision (a) shall apply to
qualified property that is acquired by or subject to lease by a
qualified taxpayer, subject to the following special rules:
   (1) A lessor of qualified property, irrespective of whether the
lessor is a qualified taxpayer, shall not be allowed the credit
provided under subdivision (a) with respect to any qualified property
leased to another qualified taxpayer.
   (2) For purposes of paragraphs (2) and (3) of subdivision (b),
"binding contract" shall include any lease agreement with respect to
the qualified property.
   (3) (A) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is not treated
as a sale under Part 1 (commencing with Section 6001), the following
rules shall apply:
   (i) Except as provided by subparagraph (C) of this paragraph,
subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall
not apply.
   (ii) Except as provided in subparagraph (B) and clause (iii), the
"qualified cost" upon which the lessee shall compute the credit
provided under this section shall be equal to the original cost to
the lessor (within the meaning of Section 24912) of the qualified
property that is the subject of the lease.
   (iii) Except as provided in clause (iv), the requirement of
subparagraph (B) of paragraph (1) of subdivision (b) shall be treated
as satisfied only if the lessor has made a timely election under
either Section 6094.1 or subdivision (d) of Section 6244 and has paid
sales tax reimbursement or use tax measured by the purchase price of
the qualified property (within the meaning of paragraph (5) of
subdivision (g) of Section 6006).  For purposes of this subdivision
and clause (iv), the amount of original cost to the lessor which may
be taken into account under clause (ii) shall not exceed the purchase
price upon which sales tax reimbursement or use tax has been paid
under the preceding sentence or under clause (iv).
   (iv) With respect to leases entered into between January 1, 1994,
and the effective date of this clause, the lessor may elect to pay
use tax measured by the purchase price of the property by reporting
and paying the tax with the return of the lessor for the fourth
calendar quarter of 1994.  In computing the use tax under the
preceding sentence, a credit shall be allowed under Part 1
(commencing with Section 6001) for all sales or use tax previously
paid on the lease.
   (B) For purposes of applying subparagraph (A) only, the following
special rules shall apply:
   (i) The original cost to the lessor of the qualified property
shall be reduced by the amount of any original cost of that property
that was taken into account by any predecessor lessee in computing
the credit allowable under this section.
   (ii) Clause (i) shall not apply in any case where the predecessor
lessee was required to recapture the credit provided under this
section pursuant to subdivision (g).
   (iii) For purposes of this section only, in any case where a
successor lessor has acquired qualified property from a predecessor
lessor in a transaction not treated as a sale under Part 1
(commencing with Section 6001), the original cost to the successor
lessor of the qualified property shall be reduced by the amount of
the original cost of the qualified property that was taken into
account by any lessee of the predecessor lessor in computing the
credit allowable under this section.
   (C) In determining the original cost of any qualified property
under this paragraph, only amounts paid or incurred by the lessor on
or after January 1, 1994, and prior to the date this section ceases
to be operative under paragraph (2) of subdivision (i), shall be
taken into account.  In the case of any qualified property
constructed, reconstructed, or acquired by a lessor pursuant to a
binding contract in existence on or prior to January 1, 1994, the
allocation rule specified in subparagraph (A) of paragraph (1) of
subdivision (b) shall apply in determining the original cost to the
lessor of qualified property.
   (D) Notwithstanding subparagraph (A), in the case of any leasing
transaction for which the lessee is allowed the credit under this
section and thereafter the lessee (or any party related to the lessee
within the meaning of Section 267 or 318 of the Internal Revenue
Code) acquires the qualified property from the lessor (or any
successor lessor) within one year from the date the qualified
property is first used by the lessee under the terms of the lease,
the lessee's (or related party's) acquisition of the qualified
property from the lessor (or successor lessor) shall be treated as a
disposition by the lessee of the qualified property that was subject
to the lease under subdivision (g).
   (4) For purposes of determining the qualified cost paid or
incurred by a lessee in any leasing transaction that is treated as a
sale under Part 1 (commencing with Section 6001), the following rules
shall apply:
   (A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be
applied by substituting the term "purchase" for the term
"construction, reconstruction, or acquisition."
   (B) Subparagraph (C) of paragraph (1) of subdivision (b) shall
apply.
   (C) The requirement of subparagraph (B) of paragraph (1) of
subdivision (b) shall be treated as satisfied at the time that either
the lessor or the qualified taxpayer pays sales or use tax under
Part 1 (commencing with Section 6001).
   (5) (A) In the case of any leasing transaction described in
paragraph (3), the lessor shall provide a statement to the lessee
specifying the amount of the lessor's original cost of the qualified
property and the amount of that cost upon which a sales or use tax
was paid within 45 days after the close of the lessee's taxable year
in which the credit is allowable to the lessee under this section.
   (B) The statement required under subparagraph (A) shall be made
available to the Franchise Tax Board upon request.
   (6) For purposes of this subdivision, in the case of any qualified
taxpayer engaged in those lines of business described in Codes 7371
to 7373, inclusive, of the Standard Industrial Classification (SIC)
Manual published by the United States Office of Management and
Budget, 1987 edition, "the first income year beginning on or after
January 1, 1998," shall be substituted for "January 1, 1994," in each
place in which it appears.  In addition, "the effective date of this
paragraph" shall be substituted for "the effective date of this
clause" and "fourth calendar quarter of 1998" shall be substituted
for "fourth calendar quarter of 1994."
   (g) No credit shall be allowed if the qualified property is
removed from the state, is disposed of to an unrelated party, or is
used for any purpose not qualifying for the credit provided in this
section in the same taxable year in which the qualified property is
first placed in service in this state.  If any qualified property for
which a credit is allowed pursuant to this section is thereafter
removed from this state, disposed of to an unrelated party, or used
for any purpose not qualifying for the credit provided in this
section within one year from the date the qualified property is first
placed in service in this state, the amount of the credit allowed by
this section for that qualified property shall be recaptured by
adding that credit amount to the net tax of the qualified taxpayer
for the taxable year in which the qualified property is disposed of,
removed, or put to an ineligible use.
   (h) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and succeeding years as follows:
   (1) Except as provided in paragraph (2), for the seven succeeding
years if necessary, until the credit is exhausted.
   (2) In the case of a small business, for the nine succeeding
years, if necessary, until the credit is exhausted.
   (i) (1) This section shall remain in effect until the date
specified in paragraph (2) on which date this section shall cease to
be operative, and as of that date is repealed.
   (2) (A) This section shall cease to be operative on January 1,
2001, or on January 1 of the earliest year thereafter, if the total
employment in this state, as determined by the Employment Development
Department on the preceding January 1, does not exceed by 100,000
jobs the total employment in this state on January 1, 1994.  The
department shall report to the Legislature annually with respect to
the determination required by the preceding sentence.
   (B) For purposes of this paragraph, "total employment" means the
total employment in the manufacturing sector, excluding employment in
the aerospace sector.
   (j) The amendments made by the act adding this subdivision shall
be operative for income years beginning on or after January 1, 1997,
except as provided in paragraph (3) of subdivision (d).
   (k) The amendments made by the act adding this subdivision shall
be operative for income years beginning on or after January 1, 1998.

  SEC. 85.  Section 23701c of the Revenue and Taxation Code is
amended to read:
   23701c.  Cemetery companies owned and operated exclusively for the
benefit of their members or which are not operated for profit; and
any corporation chartered solely for the purpose of the disposal of
bodies by burial or cremation which is not permitted by its charter
to engage in any business not necessarily incident to that purpose
and no part of the net earnings of which inures to the benefit of any
private shareholder or individual.
  SEC. 86.  Section 23701q of the Revenue and Taxation Code is
repealed.
  SEC. 87.  Section 23704.5 of the Revenue and Taxation Code is
amended to read:
   23704.5.  (a) In the case of an organization to which this section
applies, exemption from taxation under Section 23701 shall be denied
because a substantial part of the activities of that organization
consists of carrying on propaganda, or otherwise attempting to
influence legislation, but only if that organization normally--
   (1) Makes lobbying expenditures in excess of the lobbying ceiling
amount for that organization for each taxable year, or
   (2) Makes grassroots expenditures in excess of the grassroots
ceiling amount for that organization for each taxable year.
   (b) For purposes of this section--
   (1) The term "lobbying expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d) of
Section 23740).
   (2) The lobbying ceiling amount for any organization for any
taxable year is 150 percent of the lobbying nontaxable amount for the
organization for that taxable year, determined under Section 23740.

   (3) The term "grassroots expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d) of
Section 23740 without regard to subparagraph (B) of paragraph (1)
thereof).
   (4) The grassroots ceiling amount for any organization for any
taxable year is 150 percent of the grassroots nontaxable amount for
that organization for that taxable year, determined under Section
23740.
   (c) This section shall apply to any organization which has elected
(in that manner and at that time as the Franchise Tax Board may
prescribe) to have the provisions of this section apply to that
organization and which, for the taxable year which includes the date
the election is made, is described in Section 23701d and--
   (1) Is described in subdivision (d), and
   (2) Is not a disqualified organization under subdivision (e).
   (d) An organization is described in this paragraph if it is
described in--

(1) Section 170(b)(1)(A)(ii) of the Internal Revenue Code (relating
to educational institutions),
   (2) Section 170(b)(1)(A)(iii) of the Internal Revenue Code
(relating to hospitals and medical research organizations),
   (3) Section 170(b)(1)(A)(iv) of the Internal Revenue Code
(relating to organizations supporting government schools),
   (4) Section 170(b)(1)(A)(vi) of the Internal Revenue Code
(relating to organizations publicly supported by charitable
contributions),
   (5) Section 509(a)(2) of the Internal Revenue Code (relating to
organizations publicly supported by admissions, sales, etc.), or
   (6) Section 509(a)(3) of the Internal Revenue Code (relating to
organizations supporting certain types of public charities) except
that for purposes of this paragraph, Section 509(a)(3) of the
Internal Revenue Code shall be applied without regard to the last
sentence of Section 509(a) of the Internal Revenue Code.
   (e) For purposes of subdivision (c) an organization is a
disqualified organization if it is--
   (1) Described in Section 170(b)(1)(A)(i) of the Internal Revenue
Code (relating to churches),
   (2) An integrated auxiliary of a church or of a convention or
association of churches, or
   (3) A member of an affiliated group of organizations (within the
meaning of paragraph (2) of subdivision (f) of Section 23740) if one
or more members of that group is described in paragraphs (1) and (2).

   (f) An election by an organization under this section shall be
effective for all taxable years of those organizations which--
   (1) End after the date the election is made, and
   (2) Begin before the date the election is revoked by that
organization (under regulations prescribed by the Franchise Tax
Board).
   (g) With respect to any organization for a taxable year for
which--
   (1) That organization is a disqualified organization (within the
meaning of subdivision (e)), or
   (2) An election under this section is not in effect for that
organization, nothing in this section or in Section 23740 shall be
construed to affect the interpretation of the phrase, "no substantial
part of the activities of which is carrying on propaganda, or
otherwise attempting, to influence legislation, under Section 23701d."

   (h) For rules regarding affiliated organizations see subdivision
(f) of Section 23740.
  SEC. 88.  Section 23704.6 of the Revenue and Taxation Code is
amended to read:
   23704.6.  (a) An organization which--
   (1) Was exempt (or was determined by the Franchise Tax Board to be
exempt) from taxation under Section 23701 by reason of being an
organization described in Section 23701d, and
   (2) Is not an organization described in Section 23701d:
   (A) By reason of carrying on propaganda, or otherwise attempting,
to influence legislation, or
   (B) By reason of participating in, or intervening in, any
political campaign on behalf of (or in opposition to) any candidate
for public office, shall not at any time thereafter be treated as an
organization described in Section 23701f.
   (b) The Franchise Tax Board shall prescribe those regulations as
may be necessary or appropriate to prevent the avoidance of
subdivision (a), including regulations relating to a direct or
indirect transfer of all or part of the assets of an organization to
an organization controlled (directly or indirectly) by the same
person or persons who control the transferor organization.
   (c) Subdivision (a) shall not apply to any organization which is a
disqualified organization within the meaning of subdivision (e) of
Section 23704.5 (relating to churches, etc.) for the taxable year
immediately preceding the first taxable year for which that
organization is described in paragraph (2) of subdivision (a).
  SEC. 89.  Section 23731 of the Revenue and Taxation Code is amended
to read:
   23731.  Every organization or trust exempt under this chapter,
except as provided in this article, is subject to the tax imposed
upon its unrelated business taxable income, as defined in Section
23732, as follows:
   (a) Corporations (other than banks and financial corporations),
associations, and business trusts are subject to the tax imposed
under Section 23501.
   (b) Trusts are subject to the tax imposed by subdivision (e) of
Section 17041.
   This section applies to income years beginning after December 31,
1970.
  SEC. 90.  Section 23736.1 of the Revenue and Taxation Code is
amended to read:
   23736.1.  (a) For the purposes of this article, the term
"prohibited transaction" means any transaction in which an
organization subject to the provisions of this article--
   (1) Lends any part of its income or corpus, without the receipt of
adequate security and a reasonable rate of interest, to;
   (2) Pays any compensation, in excess of a reasonable allowance for
salaries or other compensation for personal services actually
rendered, to;
   (3) Makes any part of its services available on a preferential
basis to;
   (4) Makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or money's
worth, from;
   (5) Sells any substantial part of its securites or other property,
for less than an adequate consideration in money or money's worth,
to; or
   (6) Engages in any other transaction which results in a
substantial diversion of its income or corpus to;  the creator of the
organization (if a trust); a person who has made a substantial
contribution to the organization; a member of the family (as defined
in Section 267(c)(4) of the Internal Revenue Code) of an individual
who is the creator of that trust or who has made a substantial
contribution to that organization; or a corporation controlled by
that creator or person through the ownership, directly or indirectly,
of 50 percent or more of the total combined voting power of all
classes of stock entitled to vote or 50 percent or more of the total
value of shares of all classes of stock of the corporation.
   (b) For purposes of subdivision (a), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
section referred to as "obligation") acquired by a trust described in
Section 23701n shall not be treated as a loan made without the
receipt of adequate security if--
   (1) Such obligation is acquired--
   (A) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange which is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on such a national securities exchange, at a price not
less favorable to the trust than the offering price for the
obligation as established by current bid and asked prices quoted by
persons independent of the issuer;
   (B) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
   (C) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
   (2) Immediately following acquisition of that obligation--
   (A) Not more than 25 percent of the aggregate amount of
obligations issued in that issue and outstanding at the time of
acquisition is held by the trust, and
   (B) At least 50 percent of the aggregate amount referred to in
subparagraph (A) is held by persons independent of the issuer; and
   (3) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in subdivision (a).
   (4) (A) In the case of a trust described in Section 23701n, or in
the case of a corporation described in Section 23701h, all of the
stock of which was acquired before January 1, 1961, by a trust
described in Section 23701n, any indebtedness incurred by that trust
or that corporation before January 1, 1961, in connection with real
property which is leased before January 1, 1961, and any indebtedness
incurred by that trust or that corporation on or after that date
necessary to carry out the terms of that lease, shall not be
considered as an indebtedness with respect to that trust or that
corporation for purposes of this section.
   (B) In the application of paragraph (1) of subdivision (a), if a
trust described in Section 23701n forming part of a supplemental
unemployment compensation benefit plan lends any money to another
trust described in Section 23701n forming part of the same plan, that
loan shall not be treated as an indebtedness of the borrowing trust,
except to the extent that the loaning trust--
   (i) Incurs any indebtedness in order to make that loan,
   (ii) Incurred indebtedness before the making of that loan which
would not have been incurred but for the making of that loan, or
   (iii) Incurred indebtedness after the making of that loan which
would not have been incurred but for the making of that loan and
which was reasonably foreseeable at the time of making that loan.
   (c) Subdivision (a) shall not apply to a loan made by a trust
described in Section 23701n to the employer (or to a renewal of that
loan or, if the loan is repayable upon demand, to a continuation of
that loan) if the loan bears a reasonable rate of interest, and if
(in the case of a making or renewal)--
   (1) The employer is prohibited (at the time of that making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for the loan, a
particular class or classes of his or her assets the value of which
(at that time) represents more than one-half of the value of all his
or her assets;
   (2) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other independent trustee had previously refused to give that written
approval; and
   (3) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
   (4) For purposes of paragraph (2) the term "trustee" means, with
respect to any trust for which there is more than one trustee who is
independent of the employer, a majority of those independent
trustees.  For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to subdivision (b).
  SEC. 91.  Section 23740 of the Revenue and Taxation Code is amended
to read:
   23740.  (a) This section applies to any organization with respect
to which an election under Section 23704.5 (relating to lobbying
expenditures by public charities) is in effect for the taxable year.

   (b) For purposes of this section, the term "excess lobbying
expenditures" means for a taxable year, the greater of--
   (1) The amount by which the lobbying expenditures made by the
organization during the taxable year exceed the lobbying nontaxable
amount for the organization for that taxable year, or
   (2) The amount by which the grassroots expenditures made by the
organization during the taxable year exceed the grassroots nontaxable
amount for that organization for such taxable year.
   (c) For purposes of this section--
   (1) The term "lobbying expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d)).
   (2) The lobbying nontaxable amount for any organization for any
taxable year is the lesser of (A) one million dollars ($1,000,000) or
(B) the amount determined under the following table:


         If the exempt purpose           The lobbying nontaxable
         expenditures are--                   amount is--
     Not over $500,000 ..........     20 percent of the exempt
                                       purpose expenditures.
     Over $500,000 but not over
       $1,000,000 ...............     $100,000, plus 15 percent of
the
                                       excess of the exempt purpose
                                       expenditures over $500,000.
     Over $1,000,000 but not over
       $1,500,000 ...............     $175,000, plus 10 percent of
the
                                       excess of the exempt purpose
                                       expenditures over $1,000,000.

     Over $1,500,000 ............     $225,000, plus 5 percent of the

                                       excess of the exempt purpose
                                       expenditures over $1,500,000.


   (3) The term "grassroots expenditures" means expenditures for the
purpose of influencing legislation (as defined in subdivision (d)
without regard to subparagraph (B) of paragraph (1) thereof).
   (4) The grassroots nontaxable amount for any organization for any
taxable year is 25 percent of the lobbying nontaxable amount
(determined under paragraph (2) for the organization for that taxable
year.
   (d) (1) Except as otherwise provided in paragraph (2), for
purposes of this section, the term "influencing legislation" means--
   (A) Any attempt to influence any legislation through an attempt to
affect the opinions of the general public or any segment thereof,
and
   (B) Any attempt to influence any legislation through communication
with any member or employee of a legislative body, or with any
government official or employee who may participate in the
formulation of the legislation.
   (2) For purposes of this section, the term "influencing
legislation," with respect to an organization, does not include--
   (A) Making available the results of nonpartisan analysis, study,
or research;
   (B) Providing of technical advice or assistance (where such advice
would otherwise constitute the influencing of legislation) to a
governmental body or to a committee or other subdivision thereof in
response to a written request by that body or subdivision, as the
case may be;
   (C) Appearances before, or communications to, any legislative body
with respect to a possible decision of that body that might affect
the existence of the organization, its powers and duties, tax-exempt
status, or the deduction of contributions to the organization;
   (D) Communications between the organization and its bona fide
members with respect to legislation or proposed legislation of direct
interest to the organization and such members, other than
communications described in paragraph (3); and
   (E) Any communication with a government official or employee,
other than--
   (i) A communication with a member or employee of a legislative
body (where that communication would otherwise constitute the
influencing of legislation), or
   (ii) A communication, the principal purpose of which is to
influence legislation.
   (3) (A) A communication between an organization and any bona fide
member of the organization to directly encourage that member to
communicate as provided in subparagraph (B) of paragraph (1) shall be
treated as a communication described in subparagraph (B) of
paragraph (1).
   (B) A communication between an organization and any bona fide
member of the organization to directly encourage that member to urge
persons other than members to communicate as provided in either
subparagraph (A) or subparagraph (B) of paragraph (1) shall be
treated as a communication described in subparagraph (A) of paragraph
(1).
   (e) For purposes of this section--
   (1) (A) The term "exempt purpose expenditures" means, with respect
to any organization for any taxable year, the total of the amounts
paid or incurred by the organization to accomplish purposes described
in paragraph (2) of subdivision (b) of Section 24359 (relating to
religious, charitable, educational, etc., purposes).
   (B) The term "exempt purpose expenditures" includes--
   (i) Administrative expenses paid or incurred for purposes
described in paragraph (2) of subdivision (b) of Section 24359, and
   (ii) Amounts paid or incurred for the purpose of influencing
legislation (whether or not for purposes described in paragraph (2)
of subdivision (b) of Section 24359).
   (C) The term "exempt purpose expenditures" does not include
amounts paid or incurred to or for--
   (i) A separate fundraising unit of the organization, or
   (ii) One or more other organizations, if the amounts are paid or
incurred primarily for fundraising.
   (2) The term "legislation" includes action with respect to acts,
bills, resolutions, or similar items by the Congress, any state
legislature, any local council, or similar governing body or by the
public in a referendum, initiative, constitutional amendment, or
similar procedure.
   (3) The term "action" is limited to the introduction, amendment,
enactment, defeat, or repeal of acts, bills, resolutions, or similar
items.
   (4) In computing expenditures paid or incurred for the purpose of
influencing legislation (within the meaning of paragraph (1) or (2)
of subdivision (b)) or exempt purpose expenditures (as defined in
paragraph (1)), amounts properly chargeable to capital account shall
not be taken into account.  There shall be taken into account a
reasonable allowance for exhaustion, wear and tear, obsolescence or
amortization.  The allowance shall be computed only on the basis of
the straight line method of depreciation.  For purposes of this
section, a determination of whether an amount is properly chargeable
to capital account shall be made on the basis of the principles that
apply under this part to amounts which are paid or incurred in a
trade or business.
   (f) (1) Except as otherwise provided in paragraph (4), if for a
taxable year two or more organizations described in Section 23701d
are members of an affiliated group of organizations as defined in
paragraph (2), and an election under Section 23704.5 is effective for
at least that organization for that year, then--
   (A) The determination as to whether excess lobbying expenditures
have been made and the determination as to whether the expenditure
limits of subdivision (a) of Section 23704.5 have been exceeded shall
be made as though the affiliated group is one organization.
   (B) If the group has excess lobbying expenditures, each
organization as to which an election under Section 23704.5 is
effective for that year shall be treated as an organization that has
excess lobbying expenditures in an amount which equals the
organization's proportionate share of the group's excess lobbying
expenditures.
   (C) If the expenditure limits of subdivision (a) of Section
23704.5 are exceeded, each organization as to which an election under
Section 23704.5 is effective for that year shall be treated as an
organization that is not described in Section 23701d by reason of the
application of Section 23704.5, and
   (D) Subparagraphs (C) and (D) of paragraph (2) of subdivision (d),
paragraph (3) of subdivision (d), and clause (i) of subparagraph (C)
of paragraph (1) of subdivision (e) shall be applied as if the
affiliated group were one organization.
   (2) For purposes of paragraph (1), two organizations are members
of an affiliated group of organizations but only if--
   (A) The governing instrument of one organization requires it to be
bound by decisions of the other organization on legislative issues,
or
   (B) The governing board of one organization includes persons who--

   (i) Are specifically designated representatives of another
organization or are members of the governing board, officers, or paid
executive staff members of the other organization, and
   (ii) By aggregating their votes, have sufficient voting power to
cause or prevent action on legislative issues by the first
organization.
   (3) If members of an affiliated group of organizations have
different taxable years, their expenditures shall be computed for
purposes of this section in a manner to be prescribed by regulations
promulgated by the Franchise Tax Board.
   (4) If two or more organizations are members of an affiliated
group of organizations (as defined in paragraph (2) without regard to
subparagraph (B) thereof), no two members of the affiliated group
are affiliated (as defined in paragraph (2) without regard to
subparagraph (A) thereof), and the governing instrument of no
organization requires it to be bound by decisions of any of the other
organizations on legislative issues other than as to action with
respect to acts, bills, resolutions, or similar items by the Congress
or State Legislature, then--
   (A) In the case of any organization whose decisions bind one or
more members of the affiliated group, directly or indirectly, the
determination as to whether the organization has paid or incurred
excess lobbying, expenditures and the determination as to whether the
organization has exceeded the expenditure limits of subdivision (a)
of Section 23704.5 shall be made as though the organization has paid
or incurred those amounts paid or incurred by the members of the
affiliated group to influence legislation with respect to acts,
bills, resolutions, or similar items by the Congress or State
Legislature, and
   (B) In the case of any organization to which subparagraph (A) does
not apply, but which is a member of the affiliated group, the
determination as to whether the organization has paid or incurred
excess lobbying expenditures and the determination as to whether the
organization has exceeded the expenditure limits of subdivision (a)
of Section 23704.5 shall be made as though the organization is not a
member of the affiliated group.
  SEC. 92.  Section 23776 of the Revenue and Taxation Code is amended
to read:
   23776.  (a) Any organization which has suffered the suspension or
forfeiture provided for in Section 23775 may, in accordance with
Section 23305a, be relieved therefrom upon the filing of all of the
following:
   (1) An application for revivor.
   (2) When required by the Franchise Tax Board, a new application
for exemption under Section 23701.
   (3) Any returns, statements, notifications, or amounts due under
Sections 23772, 23774, or 23775 which were not previously submitted
or paid and which resulted in the suspension or forfeiture.
   (4) An information return or statement and the amounts specified
under Section 23772 for each year, or part thereof, during the period
of suspension or forfeiture in which the organization conducted any
activities or received income, grants, gifts or any other asset.
   (b) Any organization exempt from tax under Section 23701 which has
suffered the suspension or forfeiture provided for in Section 23301
or 23301.5 may be required by the Franchise Tax Board to file a new
application for exemption in connection with an application for
revivor under Section 23305.
  SEC. 93.  Section 23777 of the Revenue and Taxation Code is amended
to read:
   23777.  The exemption granted to any organization under the
provisions of Article 1 (commencing with Section 23701) of this
chapter may be revoked by the Franchise Tax Board if the organization
fails to--
   (a) File any return required under this chapter or pay any amount
due under this part or Part 10.2 (commencing with Section 18401) on
or before the last day of the 12th month following the close of the
income year;
   (b) Comply with Section 19504 (relating to powers of the Franchise
Tax Board to examine records and subpoena witnesses); or
   (c) Confine its activities to those permitted by the section under
which the exemption was granted.
  SEC. 94.  Section 23778 of the Revenue and Taxation Code is amended
to read:
   23778.  An organization whose exemption was revoked under Section
23777 may be reestablished as an exempt organization upon:
   (a) The filing or payment of:
   (1) A new application for exemption and payment of the filing fee
required under Section 23701;
   (2) Any returns, statements, or payment of any amounts due under
this part or Part 10.2 (commencing with Section 18401) which were not
previously submitted or paid and which resulted in the revocation.
   (b) When revocation occurred under subdivision (c) of Section
23777, satisfactory proof that--
   (1) The organization has corrected its nonexempt activities; and
   (2) That it will operate in an exempt manner in the future; and
   (3) The payment of any tax for periods the organization was not
qualified for exemption.
  SEC. 95.  Section 24306 of the Revenue and Taxation Code is amended
to read:
   24306.  (a) For purposes of this section, the following terms have
the following meanings, as provided in the Golden State Scholarshare
Trust Act (Article 19 (commencing with Section 69980) of Chapter 2
of Part 42 of the Education Code):
   (1) "Beneficiary" has the meaning set forth in subdivision (c) of
Section 69980 of the Education Code.
   (2) "Benefit" has the meaning set forth in subdivision (d) of
Section 69980 of the Education Code.
   (3) "Participant" has the meaning set forth in subdivision (h) of
Section 69980 of the Education Code.
   (4) "Participation agreement" has the meaning set forth in
subdivision (i) of Section 69980 of the Education Code.
   (5) "Scholarshare trust" has the meaning set forth in subdivision
(f) of Section 69980 of the Education Code.
   (b) Except as otherwise provided in subdivision (c), gross income
of a participant shall not include any of the following:
   (1) Any earnings under a Scholarshare trust, or a participation
agreement, as provided in Article 19 (commencing with Section 69980)
of Chapter 2 of Part 42 of the Education Code.
   (2) Contributions to the Scholarshare trust on behalf of a
beneficiary shall not be includable as gross income of that
beneficiary.
   (c) (1) Any distribution under a Scholarshare trust participation
agreement shall be includable in the gross income of the distributee
in the manner as provided under Section 72 of the Internal Revenue
Code, as modified by Section 24272.2, to the extent not excluded from
gross income under any other provision of this part.  For purposes
of applying Section 72 of the Internal Revenue Code, the following
apply:
   (A) All Scholarshare trust accounts of which an individual is a
beneficiary shall be treated as one account, except as otherwise
provided.
   (B) All distributions during an income year shall be treated as
one distribution.
   (C) The value of the participation agreement, income on the
participation agreement, and investment in the participation
agreement shall be computed as
    of the close of the calendar year in which the income year
begins.
   (2) A contribution by a for-profit or nonprofit entity, or by a
state or local government agency, for the benefit of an owner or
employee of that entity or a beneficiary whom the owner or employee
has the power to designate, including the owner or employee's minor
children, shall be included in the gross income of that owner or
employee in the year the contribution is made.
   (3) For purposes of this subdivision, "distribution" includes any
benefit furnished to a beneficiary under a participation agreement,
as provided in Article 19 (commencing with Section 69980) of Chapter
2 of Part 42 of the Education Code.
   (4) (A) Paragraph (1) shall not apply to that portion of any
distribution that, within 60 days of distribution, is transferred to
the credit of another beneficiary under the Scholarshare trust who is
a "member of the family," as that term is used in Section 529(e)(2)
of the Internal Revenue Code, as amended by Section 211 of the
Taxpayer Relief Act of 1997 (P.L. 105-34), of the former beneficiary
of that Scholarshare trust.
   (B) Any change in the beneficiary of an interest in the
Scholarshare trust shall not be treated as a distribution for
purposes of paragraph (1) if the new beneficiary is a "member of the
family," as that term is used in Section 2032A(e)(2) of the Internal
Revenue Code, of the former beneficiary of that Scholarshare trust.

  SEC. 96.  Section 24357.6 of the Revenue and Taxation Code is
amended to read:
   24357.6.  No deduction shall be allowed under this part for an
out-of-pocket expenditure made on behalf of an organization described
in Section 24359 (other than an organization described in
subdivision (e) of Section 23704.5 (relating to churches, etc.)) if
the expenditure is made for the purpose of influencing legislation
(within the meaning of Section 23701d).
  SEC. 97.  Section 24410 of the Revenue and Taxation Code is amended
to read:
   24410.  (a) Dividends received by a corporation commercially
domiciled in California during the income year from an insurance
company subject to tax imposed by Part 7 (commencing with Section
12001) of this division at the time of the payment of the dividends
and at least 80 percent of each class of its stock then being owned
by the corporation receiving the dividend.
   (b) The deduction under this section shall be limited to that
portion of the dividends received which are determined to be paid
from income from California sources determined pursuant to
subdivision (c).
   (c) Dividends paid from California sources shall be determined by
multiplying the amount of the dividends by an apportionment factor
equal to the ratio of gross income from California sources to all
gross income of the company.  Gross income from California sources
equals total gross income less dividends from other insurance
companies multiplied by the average of the following three factors:
   (1) A gross receipts factor, the denominator of which shall
include all receipts, other than dividends from another insurance
company, regardless of the nature or source from which derived.  The
numerator of which shall include all gross receipts, other than
dividends from another insurance company, derived from or
attributable to this state.  With respect to premiums, only receipts
which were subject to tax under Part 7 (commencing with Section
12001) of this division, shall be included in the numerator, and with
respect to income from intangibles they shall be attributable to the
commercial domicile of the insurance company.
   (2) A payroll factor determined under the provisions of the
Uniform Division of Income for Tax Purposes Act, Chapter 17, Article
2 of this part.
   (3) A property factor, determined under the provisions of the
Uniform Division of Income for Tax Purposes Act provided for in
Article 2 (commencing with Section 25120) of Chapter 17 of this part,
provided that for the purposes of this paragraph the property factor
shall include all intangible investment property, which intangible
property shall be allocated to the commercial domicile of that
insurance company.
   (4) Plus the portion of the dividends received from another
insurance company determined to be paid from California source income
pursuant to the formula set forth in paragraphs (1) through (3)
based upon the receipts, payroll and property of that other insurance
company.
   (d) The insurance company from which the dividends are received
shall furnish that information as the Franchise Tax Board may require
to determine the allocation formula and the Franchise Tax Board may
adopt those regulations as it deems necessary to effectuate the
purpose of this section.
   Nothing in this section shall be construed to limit or affect in
any manner any other provisions of this part.
  SEC. 97.5.  Section 24410 of the Revenue and Taxation Code is
amended to read:
   24410.  (a) Dividends received by a corporation during the income
year from an insurance company subject to tax imposed by Part 7
(commencing with Section 12001) at the time of the payment of the
dividends and at least 80 percent of each class of its stock then
being owned by the corporation receiving the dividend.
   (b) The deduction under this section shall be limited to that
portion of the dividends received which are determined to be paid
from income from California sources determined pursuant to
subdivision (c).
   (c) Dividends paid from California sources shall be determined by
multiplying the amount of the dividends by an apportionment factor
equal to the ratio of gross income from California sources to all
gross income of the company.  Gross income from California sources
equals total gross income less dividends from other insurance
companies multiplied by the average of the following three factors:
   (1) A gross receipts factor, the denominator of which shall
include all receipts, other than dividends from another insurance
company, regardless of the nature or source from which derived.  The
numerator of which shall include all gross receipts, other than
dividends from another insurance company, derived from or
attributable to this state.  With respect to premiums, only receipts
which were subject to tax under Part 7 (commencing with Section
12001) shall be included in the numerator, and with respect to income
from intangibles they shall be attributable to the commercial
domicile of the insurance company.
   (2) A payroll factor determined under the provisions of the
Uniform Division of Income for Tax Purposes Act (Article 2
(commencing with Section 25120) of Chapter 17).
   (3) A property factor, determined under the provisions of the
Uniform Division of Income for Tax Purposes Act (Article 2
(commencing with Section 25120) of Chapter 17), provided that for the
purposes of this paragraph the property factor shall include all
intangible investment property, which intangible property shall be
allocated to the commercial domicile of the insurance company.
   (4) Plus the portion of the dividends received from another
insurance company determined to be paid from California source income
pursuant to the formula set forth in paragraphs (1) to (3),
inclusive, based upon the receipts, payroll and property of that
other insurance company.
   (d) The insurance company from which the dividends are received
shall furnish any information as the Franchise Tax Board may require
to determine the allocation formula and the Franchise Tax Board may
adopt  any regulations as it deems necessary to effectuate the
purpose of this section.
   (e) Section 24425 shall not apply to any expense that is related
to dividends that are deductible under subdivision (a).
   (f) Nothing in this section shall be construed to limit or affect
in any manner any other provisions of this part.
  SEC. 98.  Section 24416.2 of the Revenue and Taxation Code is
amended to read:
   24416.2.  (a) The term "qualified taxpayer" as used in Section
24416.1 includes a corporation engaged in the conduct of a trade or
business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of Division 7 of Title 1 of the
Government Code.  For purposes of this subdivision, all of the
following shall apply:
   (1) A net operating loss shall not be a net operating loss
carryback for any income year and a net operating loss for any income
year beginning on or after the date that the area in which the
taxpayer conducts a trade or business is designated as an enterprise
zone shall be a net operating loss carryover to each of the 15 income
years following the income year of loss.
   (2) For purposes of this subdivision:
   (A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date.  That attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this  subdivision as follows:
   (i) Loss shall be apportioned to the enterprise zone by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is two.
   (ii) "The enterprise zone" shall be substituted for "this state."
   (B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
   (C) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone.  For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101).  That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this  subdivision as follows:
   (i) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.  For purposes of
this clause:
   (I) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
income year, and the denominator of which is the average value of all
the taxpayer's real and tangible personal property owned or rented
and used in this state during the income year.
   (II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the income year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
income year.
   (ii) If a loss carryover is allowable pursuant to this section for
any income year after the enterprise zone designation has expired,
the enterprise zone shall be deemed to remain in existence for
purposes of computing the limitation set forth in subparagraph (B)
and allowing a net operating loss deduction.
   (D) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
   (3) The changes made to this subdivision by the act adding this
paragraph shall apply to income years beginning on or after January
1, 1998.
   (b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the income year of the net operating loss
and any income year to which that net operating loss may be carried,
designate on the original return filed for each year the section
which applies to that taxpayer with respect to that net operating
loss.  If the taxpayer is eligible to qualify under more than one
section, the designation is to be made after taking into account
subdivision (c).
   (c) If a taxpayer is eligible to qualify under this section and
either Section 24416.4, 24416.5, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in an income year, the taxpayer
shall designate which section is to apply to the taxpayer.
   (d) Notwithstanding Section 24416, the amount of the loss
determined under this section, or Section 24416.4, 24416.5, or
24416.6 shall be the only net operating loss allowed to be carried
over from that income year and the designation under subdivision (b)
shall be included in the election under Section 24416.1.
  SEC. 99.  Section 24416.5 of the Revenue and Taxation Code is
amended to read:
   24416.5.  (a) For each income year beginning on or after January
1, 1995, the term "qualified taxpayer" as used in Section 24416.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA.  For purposes of this subdivision, all of the
following shall apply:
   (1) A net operating loss shall not be a net operating loss
carryback for any income year and, except as provided in subparagraph
(B), a net operating loss for any income year beginning on or after
the date the area in which the taxpayer conducts a trade or business
is designated a LAMBRA shall be a net operating loss carryover to
each following income year that ends before the LAMBRA expiration
date or to each of the 15 income years following the income year of
loss, if longer.
   (2) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any income year beginning on or after January 1, 1984, shall
be a net operating loss carryover to each of the five years
following the income year of the loss.  Subdivision (b) of Section
24416.1 shall not apply.
   (3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
   (4) "Taxpayer" means a bank or corporation that conducts a trade
or business within a LAMBRA and, for the first two income years, has
a net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA and this state.  For
purposes of this paragraph, all of the following shall apply:
   (A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the income year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second income year after commencing
business operations in the LAMBRA.  For taxpayers who commence doing
business in this state with their LAMBRA business operation, the
number of employees for the income year prior to commencing business
operations in the LAMBRA shall be zero.  The deduction shall be
allowed only if the taxpayer has a net increase in jobs in the state,
and if one or more full-time employees are employed within the
LAMBRA.
   (B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
   (i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
   (ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
   (C) In the case of a taxpayer that first commences doing business
in the LAMBRA during the income year, for purposes of clauses (i) and
(ii), respectively, of subparagraph (B) the divisors "2,000" and "12"
shall be multiplied by a fraction, the numerator of which is the
number of months of the income year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
   (5) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date.  The attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this section as follows:
   (A) Loss shall be apportioned to a LAMBRA by multiplying total
loss from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is 2.
   (B) "The LAMBRA" shall be substituted for "this state."
   (6) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
   (7) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101).  That business income
shall be further apportioned to the LAMBRA in accordance with Article
2 (commencing with Section 25120) of Chapter 17, modified as
follows:
   (A) Business income shall be apportioned to a LAMBRA by
multiplying total California business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two.  For purposes of
this clause:
   (i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the income
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the income year.
   (ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the income
year for compensation, and the denominator of which is the total
compensation paid by the taxpayer in this state during the income
year.
   (B) If a loss carryover is allowable pursuant to this section for
any income year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in subparagraph (D) and allowing a net operating
loss deduction.
   (8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
   (b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the income year of the net operating loss
and any income year to which that net operating loss may be carried,
designate on the original return filed for each year the section
that applies to that taxpayer with respect to that net operating
loss.  If the taxpayer is eligible to qualify under more than one
section, the designation is to be made after taking into account
subdivision (c).
   (c) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in an income year, the taxpayer
shall designate which section is to apply to the taxpayer.
   (d) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.6
shall be the only net operating loss allowed to be carried over from
that income year and the designation under subdivision (b) shall be
included in the election under Section 24416.1.
   (e) This section shall apply to income years beginning on and
after January 1, 1998.
  SEC. 100.  Section 24436.5 of the Revenue and Taxation Code is
amended to read:
   24436.5.  (a) No deduction shall be allowed for interest,
depreciation, taxes, or amortization paid or incurred in the income
year under Section 24343, 24344, 24345, or 24349, with respect to
substandard housing located in this state, except as provided in
subdivision (e).
   (b) "Substandard housing" means occupied dwellings from which the
taxpayer derives rental income or unoccupied or abandoned dwellings
for which both of the following apply:
   (1) Either of the following occurs:
   (A) For occupied dwellings from which the taxpayer derives rental
income, a state or local government regulatory agency has determined
that the housing violates state law or local codes dealing with
health, safety, or building.
   (B) For dwellings that are unoccupied or abandoned for at least 90
days, a state or local government regulatory agency has cited the
housing for conditions that constitute a serious violation of state
law or local codes dealing with health, safety, or building, and that
constitute a threat to public health and safety.
   (2) Either of the following occurs:
   (A) After written notice of violation by the regulatory agency,
specifying the applicability of this section, the housing has not
been repaired or brought to a condition of compliance within six
months after the date of the notice or the time prescribed in the
notice, whichever period is later.
   (B) Good faith efforts for compliance have not been commenced, as
determined by the regulatory agency.
   "Substandard housing" also means employee housing that has not,
within 30 days of the date of the written notice of violation or the
date for compliance prescribed in the written notice of violation,
been brought into compliance with the conditions stated in the
written notice of violation of the Employee Housing Act (Part 1
(commencing with Section 17000) of Division 13 of the Health and
Safety Code) issued by the enforcement agency that specifies the
application of this section.  The regulatory agency may, for good
cause shown, extend the compliance date prescribed in a violation
notice.
   (c) (1) When the period specified in paragraph (2) of subdivision
(b) has expired without compliance, the government regulatory agency
shall mail to the taxpayer a notice of noncompliance.  The notice of
noncompliance shall be in a form and shall include information
prescribed by the Franchise Tax Board, shall be mailed by certified
mail to the taxpayer at his or her last known address, and shall
advise the taxpayer of (A) an intent to notify the Franchise Tax
Board of the noncompliance within 10 days unless an appeal is filed,
(B) where an appeal may be filed, and (C) a general description of
the tax consequences of that filing with the Franchise Tax Board.
Appeals shall be made to the same body and in the same manner as
appeals from other actions of the regulatory agency.  If no appeal is
made within 10 days or if after disposition of the appeal the
regulatory agency is sustained, the regulatory agency shall notify,
in writing, the Franchise Tax Board of the noncompliance.
   (2) The notice of noncompliance shall contain the legal
description or the lot and block numbers of the real property, the
assessor's parcel number, and the name of the owner of record as
shown on the latest equalized assessment roll.  In addition, the
regulatory agency shall, at the same time as notification of the
notice of noncompliance is sent to the Franchise Tax Board, record a
copy of the notice of noncompliance in the office of the recorder for
the county in which the substandard housing is located that includes
a statement of tax consequences that may be determined by the
Franchise Tax Board.  However, the failure to record a notice with
the county recorder does not relieve the liability of any taxpayer
nor does it create any liability on the part of the regulatory
agency.
   (3) The regulatory agency may charge the taxpayer a fee in an
amount not to exceed the regulatory agency's costs incurred in
recording any notice of noncompliance or issuing any release of that
notice.  The notice of compliance shall be recorded and shall serve
to expunge the notice of noncompliance.  The notice of compliance
shall contain the same recording information required for the notice
of noncompliance.  No deduction by the taxpayer, or any other
taxpayer who obtains title to the property subsequent to the
recordation of the notice of noncompliance, shall be allowed for the
items provided in subdivision (a) from the date of the notice of
noncompliance until the date the regulatory agency determines that
the substandard housing has been brought to a condition of
compliance.  The regulatory agency shall mail to the Franchise Tax
Board and the taxpayer a notice of compliance, which notice shall be
in the form and include the information prescribed by the Franchise
Tax Board.  In the event the period of noncompliance does not cover
an entire income year, the deductions shall be denied at the rate of
1/12 for each full month during the period of noncompliance.
   (4) If the property is owned by more than one owner or the
recorded title is in the name of a fictitious owner, the notice
requirements provided in subdivision (b) and this subdivision shall
be satisfied for each owner if the notices are mailed to one owner or
to the fictitious name owner at the address appearing on the latest
available property tax bill.  However, notices made pursuant to this
subdivision shall not relieve the regulatory agency from furnishing
taxpayer identification information required to implement this
section to the Franchise Tax Board.
   (d) For the purposes of this section, a notice of noncompliance
shall not be mailed by the regulatory agency to the Franchise Tax
Board if any of the following occur:
   (1) The housing was rendered substandard solely by reason of
earthquake, flood or other natural disaster except where the
condition remains for more than three years after the disaster.
   (2) The owner of the substandard housing has secured financing to
bring the housing into compliance with those laws or codes that have
been violated, causing the housing to be classified as substandard,
and has commenced repairs or other work necessary to bring the
housing into compliance.
   (3) The owner of substandard housing that is not within the
meaning of housing accommodation, as defined in subdivision (d) of
Section 35805 of the Health and Safety Code, has done both of the
following:
   (A) Attempted to secure financing to bring the housing into
compliance with those laws or codes that have been violated, causing
the housing to be classified as substandard.

         (B) Been denied that financing solely because the housing is
located in a neighborhood or geographical area in which financial
institutions do not provide financing for rehabilitation of any of
that type of housing.
   (e) The provisions of this section do not apply to deductions from
income derived from property rendered substandard solely by reason
of a change in applicable state or local housing standards unless
those violations cause substantial danger to the occupants of the
property, as determined by the regulatory agency which has served
notice of violation pursuant to subdivision (b).
   (f) The owner of substandard housing found to be in noncompliance
shall, upon total or partial divestiture of interest in the property,
immediately notify the regulatory agency of the name and address of
the person or persons to whom the property has been sold or otherwise
transferred and the date of the sale or transference.
   (g) By July 1 of each year, the regulatory agency shall report to
the appropriate legislative body of its jurisdiction all of the
following information, for the preceding calendar year, regarding its
activities to secure code enforcement, which shall be public
information:
   (1) The number of written notices of violation issued for
substandard housing under subdivision (b).
   (2) The number of violations complied with within the period
prescribed in subdivision (b).
   (3) The number of notices of noncompliance issued pursuant to
subdivision (c).
   (4) The number of appeals from those notices pursuant to
subdivision (c).
   (5) The number of successful appeals by owners.
   (6) The number of notices of noncompliance mailed to the Franchise
Tax Board pursuant to subdivision (c).
   (7) The number of cases in which a notice of noncompliance was not
sent pursuant to the provisions of subdivision (d).
   (8) The number of extensions for compliance granted pursuant to
subdivision (b) and the mean average length of the extensions.
   (9) The mean average length of time from the issuance of a notice
of violation to the mailing of a notice of noncompliance to the
Franchise Tax Board where the notice is actually sent to the
Franchise Tax Board.
   (10) The number of cases where compliance is achieved after a
notice of noncompliance has been mailed to the Franchise Tax Board.
   (11) The number of instances of disallowance of tax deductions by
the Franchise Tax Board resulting from referrals made by the
regulatory agency.  This information may be filed in a supplemental
report in succeeding years as it becomes available.
   (h) The provisions of this section relating to substandard housing
consisting of abandoned or unoccupied dwellings do not apply to any
lender engaging in a "federally related transaction," as defined in
Section 11302 of the Business and Professions Code, who acquires
title through judicial or nonjudicial foreclosure, or accepts a deed
in lieu of foreclosure.  The exception provided in this subdivision
covers only substandard housing consisting of abandoned or unoccupied
dwellings involved in the federally related transaction.
  SEC. 101.  Section 25106 of the Revenue and Taxation Code is
amended to read:
   25106.  In any case in which the tax of a corporation is or has
been determined under this chapter with reference to the income and
apportionment factors of another corporation with which it is doing
or has done a unitary business, all dividends paid by one to another
of those corporations shall, to the extent those dividends are paid
out of the income previously described of the unitary business, be
eliminated from the income of the recipient and, except for purposes
of applying Section 24345, shall not be taken into account under
Section 24344 or in any other manner in determining the tax of any
member of the unitary group.
  SEC. 102.  Section 25114 of the Revenue and Taxation Code is
amended to read:
   25114.  (a) The Franchise Tax Board, for purposes of administering
the provisions of this article, shall examine the returns filed by
taxpayers subject to these provisions.  Where this examination
reveals potential noncompliance, a detailed examination shall be
made, notwithstanding the potential net revenue benefit to the state,
unless the taxpayer is being examined by the Internal Revenue
Service for the same year or years on the same issues.
   (b) (1) In any case of two or more organizations, trades, or
businesses (whether or not organized in the United States and whether
or not affiliated) owned or controlled directly or indirectly by the
same interests, the Franchise Tax Board may distribute, apportion,
or allocate gross income, deductions, credits, or allowances between
or among these organizations, trades, or businesses, if the board
determines that the distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes or clearly to reflect
the income of any of these organizations, trades, or businesses.  In
the case of any transfer (or license) of intangible property (within
the meaning of Section 936(h)(3)(B) of the Internal Revenue Code),
the income with respect to that transfer or license shall be
commensurate with the income attributable to the intangible property.

   (2) In making distributions, apportionments, and allocations under
this section, the Franchise Tax Board shall generally follow the
rules, regulations, and procedures of the Internal Revenue Service in
making audits under Section 482 of the Internal Revenue Code.  Any
of these rules, regulations, and procedures adopted by the Franchise
Tax Board shall not be subject to review by the Office of
Administrative Law.
   (3) If the Internal Revenue Service has conducted a detailed audit
pursuant to Section 482 of the Internal Revenue Code or Subchapter N
of Chapter 1 of Subtitle A of the Internal Revenue Code and has made
adjustments pursuant to those provisions, it shall be presumed, to
the extent that the provisions relate to the determination of the
amount of income and factors required to be taken into account
pursuant to Section 25110, that no further adjustments are necessary
for this state's purposes.  If the Internal Revenue Service has
conducted a detailed audit pursuant to Section 482 of the Internal
Revenue Code or Subchapter N of Chapter 1 of Subtitle A of the
Internal Revenue Code and has made or proposed no adjustments to the
transactions examined, it shall be presumed, to the extent that the
provisions relate to the determination of the amount of income and
factors required to be taken into account pursuant to Section 25110,
that no adjustment is necessary for this state's purposes.  These
presumptions apply to all Internal Revenue Service audit
determinations, including determinations made by the Appeals and
Competent Authority.  These presumptions shall be overcome if the
Franchise Tax Board or the taxpayer demonstrates that an adjustment
or a failure to make an adjustment was erroneous, if it demonstrates
that the results of such an adjustment would produce a minimal tax
change for federal purposes because of correlative or offsetting
adjustments or for other reasons, or if substantially the same
federal tax result was obtained under other sections of the Internal
Revenue Code.  No inference shall be drawn from an Internal Revenue
Service failure to audit international transactions pursuant to
Section 482 of the Internal Revenue Code or Subchapter N of Chapter 1
of Subtitle A of the Internal Revenue Code and it shall not be
presumed that any of those transactions were correctly reported.
  SEC. 102.5.  Section 25114 of the Revenue and Taxation Code is
amended to read:
   25114.  (a) The Franchise Tax Board, for purposes of administering
the provisions of this article, shall examine the returns filed by
taxpayers subject to these provisions.  Where this examination
reveals potential noncompliance, a detailed examination shall be
made, notwithstanding the potential net revenue benefit to the state,
unless the taxpayer is being examined by the Internal Revenue
Service for the same year or years on the same issues.
   (b) (1) In any case of two or more organizations, trades, or
businesses (whether or not organized in the United States and whether
or not affiliated) owned or controlled directly or indirectly by the
same interests, the Franchise Tax Board may distribute, apportion,
or allocate gross income, deductions, credits, or allowances between
or among these organizations, trades, or businesses, if the board
determines that the distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes or clearly to reflect
the income of any of these organizations, trades, or businesses.  In
the case of any transfer (or license) of intangible property (within
the meaning of Section 936(h)(3)(B) of the Internal Revenue Code),
the income with respect to that transfer or license shall be
commensurate with the income attributable to the intangible property.

   (2) In making distributions, apportionments, and allocations under
this section, the Franchise Tax Board shall generally follow the
rules, regulations, and procedures of the Internal Revenue Service in
making audits under Section 482 of the Internal Revenue Code.  Any
of these rules, regulations, and procedures adopted by the Franchise
Tax Board shall not be subject to review by the Office of
Administrative Law.
   (3) If the Internal Revenue Service has conducted a detailed audit
pursuant to Section 482 of the Internal Revenue Code or Subchapter N
of Chapter 1 of Subtitle A of the Internal Revenue Code and has made
adjustments pursuant to those provisions, it shall be presumed, to
the extent the provisions relate to the determination of the amount
of income and factors required to be taken into account pursuant to
Section 25110, that no further adjustments are necessary for this
state's purposes.  If the Internal Revenue Service has conducted a
detailed audit pursuant to Section 482 of the Internal Revenue Code
or Subchapter N of Chapter 1 of Subtitle A of the Internal Revenue
Code and has made or proposed no adjustments to the transactions
examined, it shall be presumed, to the extent the provisions relate
to the determination of the amount of income and factors required to
be taken into account pursuant to Section 25110, that no adjustment
is necessary for this state's purposes.  These presumptions shall
apply to all Internal Revenue Service audit determinations, including
determinations made by Appeals and Competent Authority.  These
presumptions shall be overcome if the Franchise Tax Board or the
taxpayer demonstrates that an adjustment or a failure to make an
adjustment was erroneous, if it demonstrates that the results of such
an adjustment would produce a minimal tax change for federal
purposes because of correlative or offsetting adjustments or for
other reasons, or if substantially the same federal tax result was
obtained under other sections of the Internal Revenue Code.  No
inference shall be drawn from an Internal Revenue Service failure to
audit international transactions pursuant to Section 482 of the
Internal Revenue Code or Subchapter N of Chapter 1 of Subtitle A of
the Internal Revenue Code and it shall not be presumed that any of
those transactions were correctly reported.
   (4) Notwithstanding subdivision (a), to the extent that a
corporation's federal tax has been properly determined by reference
to the profit split method under Section 936(h)(5)(C)(ii) of the
Internal Revenue Code, the allocation of combined taxable income
under the profit split method shall be presumed to be a proper
allocation under the principles of Section 482 of the Internal
Revenue Code.  This presumption may be rebutted.  For purposes of
this paragraph, "combined taxable income" shall be computed in
accordance with Section 936(h)(5)(C)(ii) of the Internal Revenue
Code.
  SEC. 103.  Section 1185 of the Unemployment Insurance Code is
amended to read:
   1185.  The director, in collaboration with the Franchise Tax
Board, shall do all of the following:
   (a) Identify taxpayers who have overpaid disability insurance
contributions in any or all tax years from January 1, 1993, to
December 31, 1995, inclusive, and have not received refunds due to
them.  For purposes of this subdivision, "taxpayers" means any
individual who filed a FTB Form 540A or 540EZ.
   (b) (1) By October 15, 1997, credit the taxpayers identified in
this subdivision with the amount of any overpaid disability insurance
pursuant to Section 17061 of the Revenue and Taxation Code.  If the
amount credited pursuant to this subdivision exceeds any amount then
due from the taxpayer, the difference shall be refunded to the
taxpayer.  For taxable years 1993, 1994, and 1995, inclusive,
interest, at the rate established pursuant to Section 19521 of the
Revenue and Taxation Code, shall accrue from April 15 of the tax year
following the overpayment to a date preceding the date of the refund
warrant by not more than 30 days.
   (2) Identify and refund overpayments, with interest, to those
taxpayers who have overpaid disability insurance contributions, and
who have not claimed refunds due to them.
   (3) Interest on overpayments of disability insurance contributions
shall be allowed and paid pursuant to Sections 19340 and 19341 of
the Revenue and Taxation Code.
   (4) For purposes of Section 19340 of the Revenue and Taxation
Code, any overpayment of disability insurance contributions shall be
deemed to have been paid on the last day prescribed for filing the
return under Article 1 (commencing with Section 18501) or Article 2
(commencing with Section 18601) of Chapter 2 of Part 10.2 of the
Revenue and Taxation Code without regard to any extension of time for
filing the return with respect to which the overpayment is allowable
as a credit under Section 17061 of the Revenue and Taxation Code.
  SEC. 104.  The amendments made by this act to Sections 17053.49 and
23649 of the Revenue and Taxation Code apply to taxable or income
years beginning on or after January 1, 1998.
  SEC. 105.  The amendments made by this act to Sections 18622,
19059, 19060, and 19311 of the Revenue and Taxation Code apply to
federal determinations that become final (as defined by this act) on
or after January 1, 2000.
  SEC. 106.  Sections 6 and 84 of this bill incorporate amendments to
Sections 17053.49 and 23649 of the Revenue and Taxation Code,
respectively, proposed by this bill and AB 473.  If both this bill
and AB 473 are enacted and each bill amends Sections 17053.49 and
23649 of the Revenue and Taxation Code, then Sections 17053.49 and
23649 of the Revenue and Taxation Code, as amended by this bill,
shall remain operative only until the operative date of AB 473, at
which time Sections 17053.49 and 23649 of the Revenue and Taxation
Code, as amended by AB 473, shall become operative.
  SEC. 107.  (a) The amendments to subdivision (a) of Section 24410
of the Revenue and Taxation Code made by this act shall apply to all
income years for which the Franchise Tax Board may propose an
assessment or allow a claim for refund.
   (b) The Legislature finds and declares that the amendments to
subdivision (a) of Section 24410 of the Revenue and Taxation Code
made by this act fulfill a statewide public purpose because they
revise a potentially unconstitutional provision contained in the Bank
and Corporation Tax Law.
   (c) Section 97.5 of this bill incorporates amendments to Section
24410 of the Revenue and Taxation Code proposed by both this bill and
SB 1125.  It shall only become operative if (1) both bills are
enacted and become effective on or before January 1, 2000, (2) each
bill amends Section 24410 of the Revenue and Taxation Code, and (3)
this bill is enacted after SB 1125, in which case Section 24410 of
the Revenue and Taxation Code, as amended by SB 1125, shall remain
operative only until the operative date of this bill, at which time
Section 97.5 of this bill shall become operative and Section 97 of
this bill shall not become operative.
  SEC. 108.  (a) The amendments made by this act to paragraph (3) of
subdivision (b) of Section 25114 of the Revenue and Taxation Code do
not constitute a change in, but are declaratory of, existing law.
   (b) Section 102.5 of this bill incorporates amendments to Section
25114 of the Revenue and Taxation Code proposed by both this bill and
AB 1208.  It shall only become operative if (1) both bills are
enacted and become effective on or before January 1, 2000, (2) each
bill amends Section 25114 of the Revenue and Taxation Code, and (3)
this bill is enacted after AB 1208, in which case Section 25114 of
the Revenue and Taxation Code, as amended by AB 1208, shall remain
operative only until the operative date of this bill, at which time
Section 102.5 of this bill shall become operative and Section 102
shall not become operative.
   (c) If Section 102.5 of this bill becomes operative, then the
amendments made by this act adding paragraph (4) to subdivision (b)
of Section 25114 of the Revenue and Taxation Code shall become
operative on January 1, 1999, and shall apply to all income years for
which the Franchise Tax Board may propose an assessment or allow a
claim for refund.
  SEC. 109.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
